Chapter 1 - vulms.vu.edu.pk Law of... · General Principles of Contracts in the Qur‟ n and the Sunnah 8 arrows were then drawn from a bag. Those who drew blank arrows got nothing

Chapter 1

General Principles of Contracts in the

Qur‟n and the Sunnah

The methodology of the Shar‟ah in dealing with „ibadt

(devotional acts) and mu„amalat, i.e., (transactions) is somewhat

different in character. A thorough study of the Quran and the

Sunnah on this subject reveals that „ibadt have been dealt with in

detail, while mu„amalt have been discussed in general terms. The

wisdom appears to be that „ibadt are held to be universal truths

that are unaffected by time and space. They are not subject to

modification or change by means of ijtihd or otherwise. As these

fixed commandments were necessary and they have been provided

for. The mu„amalt are matters pertaining to individuals

interacting amongst themselves. The variety of this interaction is

neither foreseeable nor capable of being complied with by a

regime of fixed rules. They are also changeable in different epochs

of time within various geographical entities.

Imam ibn Taymiyyah explaining the difference between

„ibadt and mu„amalt writes:

The acts and deeds of individuals are of two types: „ibadt

(devotional acts) whereby their religiousness is improved and

adapt (transactions) with they need in their worldly matters. An

inductive survey of sources of the Shariah establishes that

devotional acts are sanctioned by express injunctions of the

Shariah. Thus, what is not commanded cannot be made obligatory.

As for transactions, the principle governing them would be

General Principles of Contracts in the Qur‟n and the Sunnah

4

permissibility and absence of prohibition. So, nothing can be

prohibited unless it is proscribed by Allah and His Messenger.1

In view of this, the Shariah has laid down rules in connection

with mu„amalt in general terms so that different people at

different places and in different times may seek guidance. By

giving a general framework, the Lawgiver conceded the right to

Muslim jurists to frame specific rules for mu„amalt, which may

be deemed necessary under prevailing circumstances. This

methodology envisaged by the Shariah provides people a

reasonable degree of liberty in their dealings with each other and

entering into contracts and transactions.

Keeping such treatment of the mu„amalt in Islamic law

under consideration the broad principles can be elaborated as

follows.

1. Free Mutual Consent

Free mutual consent of the contracting parties is a prerequisite for

the validity of a contract. This is the cause that brings into being

the obligations arising from a contract. The consent that is

required for the formation of valid contract is a free consent. A

consent that is obtained through coercion, fraud, misrepresentation

or some other illegal means renders a contract invalid in the

Shariah. Similarly a contract made in a state of intoxication or by

way of jest or through mistake is also invalid in Islamic Law. This

is because the elements of free consent and the intention of the

parties to enter into a contract and accept consequential

obligations is missing in such cases.

The principle of free mutual consent has been emphasized in

a number of verses of the Qur‟n and Adth of the Holy Prophet

(s.a.w.s.). A number of verses and traditions can be cited in

support.

نكم بالباطل إال أن تكون يا أي ها الذين آمنوا ال تأكلوا أموالكم ب ي ت ارةة ن ت ااض ممنكم

1 Ibn Taymiyyah, al-Fatw al-Kubr, Beirut: Dr al-Kutub

Islamic Law of Contracts and Business Transactions

5

O you who believe, devour not your property among

yourselves by unlawful means except that it be trading

by your mutual consent.2

The Holy Prophet (s.a.w.s) said: “The contract of sale is valid only

by mutual consent”.3 In another adth the Holy Prophet (s.a.w.s)

said: “My people are forgiven for that which they have done

through mistake, forgetfulness and under coercion”.4

The principle of free consent requires that the consenting

parties have certain and definite knowledge of the subject matter

of the contract and the rights and obligations arising from it.

2. Prohibition of Gharar

Prohibition of gharar is another principle that governs all

contracts and transactions. The Arabic word gharar conveys the

meanings of indeterminacy, speculation, hazard and risk. As a

technical term it is applied to uncertainty about the ultimate

outcome of a contract, which may lead to dispute and litigation.

A contract is presumed to suffer from gharar if it is about:

(a) an occurrence about which the parties are unaware

whether such in event will take place or not;

(b) a thing that is not within the knowledge of the parties.

(c) a thing about which it is not known whether it exists or

not;

(d) a thing whose acquisition is in doubt; and

(e) a thing whose quantum is unknown.

Examples of transactions based on gharar are: sale of fish in

water, birds in the air, a fetus in the womb, and fruits of trees at

the beginning of season when their quality cannot be established.

2 Qur‟n 4:29

3 Muammed ibn Yazd ibn Mjah, Sunan, Istanbul: Dr al-Da‟wah,

1952 adth no. 2245. 4 Nr al-Dn „Al Haytham, Majma„ al-zaw‟id, Beirut: Dr al-Kitb al-

„Arab, 1982, vol. 6, p. 250.


6

Prohibition of gharar has occurred in a large number of

adth such as:

(a) Abu Hurairah (r.a.t.a.) narrated that the Holy Prophet

(s.a.w.s.) forbade sale by pebbles and the gharar sale i.e.

indeterminate and speculative transactions.5

(b) It is narrated by Anas ibn Malik that God‟s Messenger

forbade the sale of fruits till they were ripe.

c) Allah‟s Messenger further said: “If Allah spoiled the

fruits what right would one party have to take the money

of his brother”?6

(d) „Al reported that the Messenger of Allah forbade forced

purchases from a needy person and gharar purchase and

the purchase of fruit before it reached maturity.7

3. Prohibition of Rib

Another principle that governs transactions is that of prohibition of

rib. Rib is defined as “an increase that has no corresponding

consideration in an exchange of property for property”.8

A contemporary scholar, Nabl lih has defined it as “an

unlawful gain derived from the quantitative inequality of the

counter-value in any transaction purporting to affect the exchange

of two or more species which belong to the same genus and are

governed by the same efficient cause”.9

The prohibition of rib appears in a large number of texts of

the Quran and the Sunnah.

Says the Qur‟n:

5 Muslim ibn al-ajjj Muslim, a, Beirut: Dr Iy al-Turth al-

Islm, Kitb al-Tijrt, no. 1513, vol. 3, p. 454. 6 Ibid, Kitb al-Buy„, no. 1554, vol. 3, p. 1190

7 Sulaymn ibn al-Ash„ath al-Sijistn Ab Dwd, Sunan, Cairo: Iy

al-Sunnah al-Nabawiyyah, 1975, no. 3382, vol. 3, p.676. 8 Muammad ibn Mamd Bbart, al-„Inyah „al al-Hidyah, Cairo:

Muaf al-Bb al-alab, 1970, vol.7, p.3. 9 Nabl lih, Unlawful Gain And Legitimate Profit in Islamic Law,

London: Kluwer law International, 1992, p.16.


7

وأحل الله الب يع وح م ال مبا

“And Allah has permitted sale and prohibited usury”.10

يا أي ها الذين آمنوا ات قوا الله وذروا ما بقي من ال مبا إن كنتم مؤمنين فإن لم ت فعلوا فأذنوا بح بض ممن الله ورسوله وإن ت بتم {2/278}

{279}ف لكم رؤوس أموالكم ال تظلمون وال تظلمون

O you who believe: Fear God and give up what remains

of your demand for usury if you are indeed believers. If

you do it not, take notice of war from God and His

Apostle, but if you turn back you shall have your capital

sums. Deal not unjustly and you shall not be dealt with

unjustly.11

The Holy Prophet (s.a.w.s.) cursed one who charges rib,

gives it, records it, and witnesses it. He said, “They are all equal 12

4. Prohibition of Qimr (Gambling) and Maysir (Games of

Chance)

Qimr includes every form of gain or money the acquisition of

which depends purely on luck and chance. As opposed to others

equally eligible, one may acquire income as a result of lottery or

lucky draws. It also includes any receipt of money, benefit or

usufruct that is at the cost of the other party or parties having equal

entitlement to that money or benefit.13

Maysir literally means getting something too easily or getting

a profit without working for it. The form most familiar to the

Arabs was gambling by casting lots by means of arrows on the

principle of lottery. The arrows were marked and served the same

purpose as a modern lottery ticket. An item e.g. the carcass of a

slaughtered animal was divided into unequal parts. The marked

10

Qur‟n, 2:275 11

Qur‟n, 2:278 12

Muslim, a, Kitb al-Musqt, no. 1598, vol. 3, p.1219. 13

Mahmood Ahmad Ghazi, Mudrabah Financing an appraisal, Paper

presented in the Conference on Islamic Corporate Finance: Shar‟ah

based Solutions, Nov. 21-22, 1998 at Karachi.


8

arrows were then drawn from a bag. Those who drew blank arrows

got nothing while other arrows indicated prizes big or small.

Whether one got a big share or a small share or nothing, depended

on pure luck. Dicing and wagering are rightly held to be within the

definition of gambling and Maysir.14

The Qur‟n has explicitly

prohibited this practice. It says:

يا أي ها الذين آمنوا إنما الخم والميس واألنصاب واألزالم رجس ممن مل اللي ان فاجتنبوو لعلكم ت فلحون

O you who believe: Intoxication and gambling,

dedication of stones, and divination by arrows are an

abomination of satan‟s handiwork. Eschew such

abomination, that you may prosper.15

5. Prohibition of Khilabah and Ghishsh (Fraud and Deception)

The Qur‟n and the Sunnah disapprove of fraud, cheating and

deception in whatever form they might be. The words khilbah,

ghishsh and taff have been used in the Qur‟n and the Sunnah to

convey the meanings of fraud and cheating. Fraud refers to

maneuver practiced by one of the parties to induce a person to a

contract without which he would have not entered it. It also refers

to concealing the defects of and adulteration in merchandise.

Fraud and cheating have been strongly condemned in the

Qur‟n and the Sunnah. Fraud includes a number of practices such

as giving short measure and short weight (taff), false bidding to

raise price of an item (najash), leaving an animal unmilked for a

long time to give false impression to buyer about its milk yield

(tariyah), the practice of meeting villagers at the outskirts of the

town in order to purchase their merchandise before they reach the

market place (talaqq al-rukbn), false swearing and hiding

defects in sale.

Some texts of the Qur‟n and the Sunnah dealing with the

topic are as follows:

14

Abdullah Ysf „Al, The Holy Qur‟n: Translation and Commentary,

al-Rji Company, Saudi Arabia: 1983, p.111. 15

Qur‟n, 5:90.


9

وإذا كالوهم أو {2} الذين إذا اكتالوا لى الناس يست وفون {1}ويل لملم فمفين عوثون {3}وزنوهم يخس ون {5} لي ومض ظيمض {4} أال يظن أولئك أن هم مب

Woe to those that deal in fraud, those who, when they

have to receive by measure, exact full measure, but when

they have to give by measure or weight to men, give less

than due. Do they not think that they will be called to

account on a Mighty day.16

The Prophet (s.a.w.s) is reported to have said: “If both the parties

spoke the truth and described defects of the goods, then they

would be blessed in their transactions, and if they told lies and hid

something, then the blessing of their transaction would be lost.17

The Holy Prophet (s.a.w.s) also said: “False swearing

(by the seller) is beneficial to the trade, i.e. it may

persuade the buyer to purchase the goods, but in that

way he will be deprived of God‟s blessing to the

earnings”.18

It is reported that a person came to Holy Prophet

(s.a.w.s.) who was always defrauded in buying. The

Holy Prophet (s.a.w.s.) instructed him to say at the time

of buying: “There should not be any attempt to deceive,

and I have the right to cancel it within three days”.19

“The truthful merchant will be on the day of resurrection

together with the Prophets, the faithful ones, the martyrs

and the pious people”.20

The Holy Prophet (s.a.w.s.) once happened to pass by a

heap of grain in a market place and on examination

found that the grain beneath the surface was wet while

that on surface was dry. He chided the seller for

16

Qur‟n, 83:1-6 17

Muammad ibn Ism„l Bukhr, a, Beirut: Dr al-Kitb al-„Arab,

1323 A.H., no. 2079, p.410. 18

Ibid., no. 2087, p. 412. 19

Ibn Mjah, Sunan, no. 2205, vol. 2, p.743. 20

Ibid., no. 2139, vol. 2, p.724.


10

resorting to such deceptive tactics and said: “he who

deceives is not one of us”.21

6. Prohibition of Two Mutually Inconsistent Contracts or

Contingent Contracts

This is another principle that relates to transactions. Two mutually

inconsistent contracts have been prohibited by the Holy Prophet

(s.a.w.s.) in a number of adth.

It is narrated by Ab Hurayrah (may Allah be pleased with

him) that the Holy Prophet (s.a.w.s.) prohibited from two sales in

one sale (bay‟atn f bay„).22

The adth of two sales in one sale

has been interpreted in a number of ways, e.g.

1. The sale of two articles for two prices: This occurs where one

person says to other “I sell you this article at this price on the

condition that you sell your house at this price”

2. Contingent sale: It occurs when a contract is made contingent

upon another contract when both are mutually inconsistent

for example, A says to B, “I sell you my house if C sells his

house to me”. Here the completion of first contract is

contingent upon the second contract.

3. The sale of a single object for two prices: This kind of sale

has been understood in two ways: In the first way: one of the

two prices is payable in cash and the other is payable later.

For example: A says to B “I sell you this commodity for one

hundred in cash and one hundred and fifty on credit.” In the

second way: one of the contracting party says: “I sell this

garment cash down for such and such a price on the condition

that I will buy it back after a certain delay at a certain other

price.23

7. Conformity of Contract with the Maqid al-Shar‘ah

(Objectives of the Shar‘ah)

21

Muslim, a, no. 102, vol. 1, p.99. 22

Ab Dwd, Sunan, no. 3540, vol. 3, p.769. 23

See Nayla comair-obeid, The Law of Business Contracts in the Arab

Middle East, London: Kluwer law international, 1996 p.61.


11

The aim of the Shariah in regard to man is five fold to preserve his

religion, life, progeny, intellect and material wealth. All the

injunctions of the Shar„ah are directed towards the realization of

five objectives known as the maqid al-Shar„ah. These are:

1. Preservation of Dn (Religion)

2. Preservation of Nafs (Life)

3. Preservation of Nasl (Progeny)

4. Preservation of „Aql (Intellect)

5. Preservation of Ml (Property)

Any transaction or contract that offends or jeopardizes any of

these objectives is invalid in the Shar„ah. It is pertinent to note

here that the maqid al-shar„ah are alternately referred to as

huqq Allah (rights of God) in Islamic Law. The right of God in

Shariah refers to every thing that involves the benefit of the

community at large. Taftazani defines huqq Allah in the

following words: “By rights of God is meant that which

comprehends a public benefit, not peculiar to any individual. It is

referred to God because of the greatness of its significance and

generality of benefit”.24

Thus, huqq Allah in this sense

corresponds with public rights, or public policy in the modern law.

The objectives of Shariah or huqq Allah have been emphasized in

a large number of texts of the Qur‟n and the Sunnah. The

following verses on this topic can be cited.

نا لى بني إس ائيل أنه من ق تل ن فسةا بغي ن فسض أو فسادض من أجل ذلك كتب في األرا فكأنما ق تل الناس جميعةا ومن أحياها فكأنما أحيا الناس جميعةا

On that account, we ordained for the children of Israel

that if any one slew a person, unless it be for murder or

for spreading mischief in the land, it would be as if he

slew the whole people, and if anyone saved a life, it

would be as he saved the life of whole people.25

ولكم في القصاا حياة يا أولي األلباب لعلكم ت ت قون

24

Mas‟d ibn „Umar Taftazn, al-Talw, Cairo: Maktabah Muammad

„Al abh, 1957, vol.2, p.151. 25

Qur‟n, 5:32.


12

In the law of equality, there is saving of lfie to you, O

men of understanding.26

نكم بالباطل يا أي ها الذين آمنوا ال تأكلوا أموالكم ب ي

O you who believe: Devour not your property among

yourselves in vanities.27

In a adth the Holy Prophet (s.a.w.s.) said: “Allah has made the

life, and property and honour of each one of you unto the other

sacred and inviolable like this day of this month in this territory.”28

The requirement of the conformity of contract with the

objectives of the Sharah is similar to the requirement of modern

law that an agreement should not be against public policy.

8. Principle of Liability for Loss and Entitlement to

Profit

Another principle that governs contracts and commercial

transactions is the principle of liability for loss and entitlement to

profit. This principle has been enunciated in the following texts.

The Holy Prophet (s.a.w.s.) said:

1. “Usufruct devolves with liability”29

2. “A loan with a sale is not permitted, nor two conditions

in a sale nor a profit of a thing allowed which is not in

one‟s liability, nor the sale of what you do not have in

your possession.30

This principle provides that a person is entitled to profit only

when he bears the risk of loss. The principle operates in a number

of contracts such as contract of sale, hire or partnership. A

businessman is entitled to profits and gain in his business because

26

Qur‟n, 2:179. 27

Qur‟n, 4:29. 28

Bukhr, a, no. 7447, p.1562, no. 7447, p.1562. 29

Ab Dwd, Sunan, no. 3508, vol. 3, p.777. 30

Ab „Abd al-Ramn ibn Shu„ayb Nas‟, Sunan, Istanbul: Dr al-

Da„wah, Kitb al-Tijrah, no. 4625, 4644, vol. 7, p.33.


13

he is ready to bear loss. Similarly, the landlord of a house is

entitled to rent of his house in the hiring contract because he

subjects himself to the risk of its destruction and damages to it.

This risk makes him the rightful owner of its rent.

All profit that has accrued to the partners in a partnership

contract is also attributable to this principle of liability. On the

other hand, any excess over and above the principal sum paid to

the creditor by the debtor is prohibited because the creditor does

not bear any risk with regard to the amount lent.

9. Permissibility as a General Rule

In the field of transactions and contracts every thing that is not

prohibited is permissible. This rule has been emphasized in a

number of verses of the Qur‟n. Some of which are as follows:

وسخ لكم ما في السماوات وما في األرا جميعةا ممنه

And God has made of service unto you whatever is in

the heavens and whatsoever is in the earth; it is all from

him”.31

قل ال أجد في ما أوحي إلي مح مةا لى طا مض ي عمه إال أن يكون ميتةة أو دمةا ا أو لحم خنزي ض فإنه رجس أو فسقةا أهل لغي الله به فمن اض غي مسفوحة

بااض وال ادض فإن ربك غفور رحيم

Say: I find not in that which is revealed unto me

prohibited to an eater that he eats thereof, except it be

carrion, or abomination which was immolated to the

name of other than God. But who is compelled (thereto)

neither craving nor exceeding the limit, Lo, your Lord is

forgiving, merciful.32

قل من ح م زينة الله التي أخ لعبادو وال يمبات من ال مز

31

Qur‟n, 45:13. 32

Qur‟n 6:145.


14

Say (O Muhammad): Who has forbidden the adornment

of God, which he has brought forth for His bondsmen,

and the good things of His providing.33

The principle of permissibility referred to above establishes

the fact that all agreements and conditions contained in them are

permissible as long as they do not contradict any explicit text of

the Qur‟n and the Sunnah. This broad principle gives ample

scope to different communities to frame laws for themselves in

order to meet new and changed situations.

“He has explained to you that which is forbidden”34

The adth of the Holy Prophet (s.a.w.s.) also highlight

permissibility as a general rule to be adhered to in the sphere of

muamlat. The Holy Prophet (s.a.w.s.) says: “Muslims have to

abide by their conditions except those that make the unlawful

lawful or the lawful unlawful.”35

This adth points to the fact that

every agreement is basically lawful so long as it does not oppose

any explicit text of the Qur‟n and the Sunnah.

The Quranic commandment of the fulfillment of contractual

obligations contained in the first verse of Srah al-Midah36

also

provides that subject to any prohibition and limitation set down in

the Qur‟n and the Sunnah all contracts are to be fulfilled. Ibn

Taymiyyah writes. “If proper fulfillment of obligations and the

respect for covenants are prescribed by the Lawgiver, it follows

that the general rule is that contracts are valid. It would have been

meaningless to give effect to contracts and recognize the legality

of their objective, unless these conditions were themselves

valid”.37

Conclusion

33

Qur‟n 7:32. 34

Qur‟n, 6:119. 35

Haytham, Majma„ al-Zaw‟id, vol. 4, p.205. 36

O believers: fulfill your contracts. Qur‟n 5:1. 37

Ibn Taymiyyah, Fatw, vol.3, p.387.


15

The Qur‟n and the Sunnah have dealt with „ibdt (devotional

acts and the matters of ritual obedience) in detail and muamalat

(civil transactions) in general terms.

Some important principles governing commercial contracts and

transactions are as under:

(a) The contract should be by free mutual consent.

(b) It should be devoid of gharar (uncertainty,

indeterminacy)

(c) it should be free from rib

(d) It should not contain an attribute of qimr (gambling)

and maysir (games of chance)

(e) It should be free from ghishsh, and khilbah (fraud and

cheating)

(f) Two mutually inconsistent contracts are not permissible.

(g) a contract should not be contrary to objectives of the

Shar„ah.

(h) Entitlement to profit depends upon liability for risk.

(i) What is not explicitly prohibited is permissible. All the

agreements are permissible unless they contradict any

text of the Qur‟n or the Sunnah, or oppose the

objectives of the Shar„ah.

Chapter 2

Meaning of „Aqd (Contract) and

other similar Terms

Meaning of the terms: Mthq, ‘Ahd and ‘Aqd

Three Arabic terms are used to designate contract and convey the

sense of undertaking and obligation: Mthq, „Ahd and „Aqd

Mthq

Mthq is a contract that signifies earnestness and firm

determination on the part of parties to fulfill the contractual

obligation. In other words mthq is a contract, which is

considered to be sacred by the contracting parties, and has more

sanctity than the ordinary contracts. The examples of mthq

include; the very first covenant between man and God at the outset

of creation, treaties by the Muslims with other nations, and the

contract of marriage. The word mthq has been used in the

Qur‟n in a number of verses.

الذين يوفون بعهد الله وال ينق ون المييا

These who are true to their bond with God and who

never break their covenant.1

ن هم ممييا نكم وب ي ين ف عليكم النص إال لى ق ومض ب ي وإن استنص وكم في الدم والله بما ت عملون بصي

1 Qur‟n, 13:20

Meaning of „Aqd (Contract) and other similar Terms

18

But if they seek your aid in religion, it is your duty to

help them except against a people with whom you have a

treaty of mutual alliance.2

ن هم ممييا نكم وب ي إال الذين يصلون إلى ق ومض ب ي

Except those who join a group with whom a you have

treaty.3

وكيف تأخذونه وقد أف ى ب ع كم إلى ب عضض وأخذن منكم مميياقةا غليظةا

For how can you take it back (dower), when you have

lain with each other, and entered a firm contract?4

The commentators of the Qur‟n hold that the word mthq in

this last verse refers to the contract of marriage. Thus marriage is a

sacred contract enjoying he sanctity of religion.

‘Ahd „Ahd means a unilateral promise or undertaking although it also

includes a bilateral obligation. The Qur‟n has used this word in

both senses. Some verses in which the word has occurred are

given below:

وأوفوا بالعهد إن العهد كان مسؤوالة

And fulfill every engagement, for every engagement will be

enquired into (on the day of reckoning)5.

وأوفوا بعهد أوو بعهدكم

And fulfill your covenant with me as I fulfill my covenant with

you.6

2 Qur‟n, 8:72

3 Qur‟n. 4:90

4 Qur‟n, 4:21

5 Qur‟n, 17:34

6 Qur‟n, 2:40


19

والموفون بعهدهم إذا اهدوا

(But righteous) are those who fulfil the contracts, which

they have made.7

‘Aqd

„Aqd is synonymous with the word “contract” found in modern

law. It is of common occurrence in Islamic legal literature. It

implies obligation arising out of a mutual agreement.

The literal meaning of the word „aqd is “to join” and “to tie”.

The term „aqd has an underlying idea of conjunction as it joins the

intentions and declarations of two parties. The Qur‟n has used the

word in this sense in different places.

ل الكتاب أجله وال ت عزموا قدة النمكاا حتى ي ب

And resolve not on the marriage tie until the prescribed

period („Iddat) reaches its end.8

ال ي ؤاخذكم الله باللغو في أيمانكم ولكن ي ؤاخذكم بما قدتم األيمان

Allah will not call you to account for what is void in

your oaths, but will call you to account for the oath,

which you take in earnest.9

يا أي ها الذين آمنوا أوفوا بالعقود

O you who believe! Fulfil your contracts.10

Definition of ‘Aqd

In Islamic legal literature „aqd is used in two senses i.e.

general and specific.

In the general sense, „aqd is applied to every act which is

undertaken in earnestness and with firm determination

regardless of whether it emerges from a unilateral intention

7 Qur‟n 2:177

8 Qur‟n, 2:235

9 Qur‟n, 5:88

10 Qur‟n, 5:1


20

(irdah munfaridah) such as waqf, remission of debts,

divorce, undertaking an oath, or it results from mutual

agreement, such as sale, hire, agency and mortgage,11

„aqd in

this sense is applied to an obligation irrespective of the fact

that the source of this obligation is a unilateral declaration or

agreement of two declarations.

In the specific sense it has been defined in different

ways. However, the common feature of all definitions is that

it is a combination of an offer and acceptance which gives

rise to certain legal consequences.

It is pertinent to note that modern Muslim scholars are

inclined to apply „aqd only to bilateral contracts as it is the

case in Western laws. Rayner attributes this inclination to an

increasing tendency towards uniformity with the West in the

field of obligations. In the view of this author, it is an

evidence of the fact that Muslim Scholars are clearly moving

away from the wider Islamic interpretation of the term

towards the more precise definitions employed in Western

systems.12

Now we take up some important definitions of „aqd in

the modern sense of bilateral obligations.

a) Murshid al-ayrn: “Conjunction of an offer emanating

from one of the two contracting parties with the acceptance of the

other in a manner that it affects the subject-matter of the

contract”.13

b) Majallat al-Akm al-‘Adliyyah: “It is where the two parties

undertake obligations in respect of any matter. It is affected by the

combination of an offer (jb) and acceptance (qabl)”.14

In‟iqd (making of „aqd) has been defined in Section 104 of

the Majallah. It reads: “In‟iqd is to connect an offer with

11

See Wahbah al-Zuhayl, al-Fiqh al-Islm wa adillahtuh, Damascus:

Dr al-Fikr, 1984, vol. 4, p.80. 12

Rayner, The Theory of contracts in Islamic Law, London, Graham and

Trotman. 1991, p. 80. 13

Qudr Pasha, Murshid al-ayrn, Cairo: 1933, art. 186, p. 27. 14

Commission of Ottoman Jurists (1867-77) Majallat al-Akm al-

„Adliyyah, Istanbl, 19305A.H., art. 153.


21

acceptance in a legal manner from which flow legal consequences

with respect to subject matter”.15

It seems that the term „aqd as

used in the Majallah is equivalent to the term “agreement” in the

contract Act of 1872. Law considers a simple agreement contract

only when it is enforceable. In‟iqd, on the other hand, signifies

that the contract has actually taken place. Thus the difference

between „aqd and in‟iqd is that the latter expresses the additional

condition of being legal, i.e., enforceable by Law.

c) Al-‘Inyh: “Legal relationship created by the conjunction of

two declarations, from which flow legal consequences with regard

to the subject matter”.16

d) Shaykh Ab Zahrah: “„Aqd is a conjunction between two

declarations or that which substitutes them” (i.e., conduct creating

a legal effect”.

e) ‘Abd al-Razzq al-Sanhr: “Contract is concurrence of two

wills to create an obligation or to shift it or to relinquish it”.

Sale and hire contracts are examples of contract meant for

creating an obligation. The contract of hawlah, i.e., assignment of

debt serves as a means of shifting liability from a principal debtor

to a third party, which assumes the role of new debtor.

Preferred Definition

Contemporary Muslim scholars prefer the definition of al-„Inyah

referred to above, because it is much more comprehensive, and

covers all the ingredients of contract: (1) agreement based on offer

and acceptance, (2) contracting parties; (3) completion of offer and

acceptance in a legal manner; and (4) subject matter.

Analysis of the Definition

The definition offered by the author of al-„Inyah can be broken

into the following ingredients:

● Existence of two parties: The definition implies that there

must be two parties to the contract. Thus a contract cannot be

concluded through a unilateral declaration although such

declaration may have legal effects. An example of a unilateral

15

Ibid., art. 154 16

Bbart, „Inyah „al Fath al-Qadr, vol. 5, p. 47.


22

declaration is divorce (alq), which issues forth from the

husband only but has legal consequences. An endowment

(waqf) also comes into being through a unilateral declaration.

Thus, though a unilateral declaration may have legal

consequences in many cases, it cannot be called a contract

(„aqd) on the basis of this definition.

● Issuance of outward act depicting internal willingness. There

must issue forth from the contracting parties that which

makes manifest the intention or willingness of parties to enter

into a contract. Such willingness may be communicated by

way of speech, an action or any other indication. What issues

forth first from either of the parties is termed the offer (jb)

while that which follows is termed the acceptance (qabl).

The offer and acceptance are declaration of the internal

willingness of the parties.

● There must be a legal (Shar„) union between two

declarations. The offer and acceptance must agree with each

other in the manner prescribed by the Shar„ah. This

agreement or conformity or union cannot take place unless

certain conditions are fulfilled., like the issuance of jb and

qabl in the majlis, the conformity of the offer to the

acceptance, the existence of the offer till the acceptance

linked with it.

● The appearance of the effects of the conjunction of the offer

and acceptance in the subject matter. The contract when

formed produces legal effects in the subject matter. Thus the

legal status or position of the subject matter either stands

modified or shifts from one state to another. In the contract of

sale, for example, the ownership of the goods stands

transferred from the seller to the buyer, while in a mortgage

the possession of the property passes from one party to

another.

Conclusion

The preceding discussion may be summarized as follows:

◘ Three Arabic terms mthq, „ahd” and „aqd are used to

convey the sense of undertaking and obligation.


23

◘ Mthq is a contract that signifies earnestness and firm

determination on the part of parties to fulful a contractual

obligation. Mthq has been used in Qur‟n in the sense of

covenant, treaty of mutual alliance with non-believers and for

marriage contract.

◘ „Aqd conveys the sense of unilateral promise or undertaking.

◘ „Aqd implies obligation arising out of mutual agreement „Aqd

is defined as legal relationship created by the conjunction of

two declarations, from which flow legal consequences with

regard to the subject-matter.

Chapter 3

Elements of Contract: Form

(īghah)

The majority of the Muslim Jurists hold that the essential elements

of a contract are three: the form i.e. offer and acceptance (īghah);

the contracting parties („āqidān); and the subject matter (ma„qūd

„alayh). Hanafi jurists hold that there is only one element of a

contract; namely, the īghah (form). This, however, implies the

existence of other elements. From the practical point of view, there

is not much difference between the opinion of the anafīs and that

of the majority. It is pertinent to note that some modern Muslim

jurists have dealt with the object of contract or the motivating

cause of contract as an independent element of contract. They did

not consider it a part of the subject matter. As such the elements of

a contract are four instead of three.1

Sanhūrī,, an eminent contemporary Muslim jurist, has cited

seven component elements in a contract: They are (1) the

concurrence of offer and acceptance; (2) the unity of the majlis of

contract; (3) plurality of contracting parties; (4) reason („aql), or

the power of distinction (tamyīz) of the contracting parties; (5)

That the subject (maall) is susceptible to delivery; (6) the object

(mahall) defined; and (7) the beneficial nature of the object in that

it is permitted for trade in.2 We have however, followed the

scheme of the earlier jurists.

1 See Zuhaylī, al-Fiqh al-Islamī wa Adillahtuhū, vol.4, p. 94.

2 Sanhūrī, Maādir al-aq ,vol.4, pp. 134-135.

Islamic Law of Contract and Business Transactions

26

Form of Contract

Form is the instrument or the means by which a contract is made.

It consists of ījāb (offer) and qabūl (acceptance).

Meaning of ījāb and Qabūl

In the Majallah, ījāb has been defined as “a declaration that is

made first with a view to creating an obligation, while the

subsequent declaration is termed qabūl.3

In Islamic Law, ījāb signifies the willingness of a party to do

something positive. Islamic Law is silent on whether the

willingness of a party to abstain from a thing also constitutes ījāb

or not. The Council of Islamic Ideology in Pakistan is of the view

that only the commission of an act forms ījāb. Abstinence from an

act cannot be regarded as ījāb.4 The Federal Shariat Court, on the

other hand, has held a different viewpoint. It is of the opinion that

a contract may be to do anything or to abstain from doing it.5 This

meaning of ījāb conforms to the meaning of ījāb in the Contract

Act of 1972. The Contract Act defines it in the following words:

“When one person signifies to another his willingness to do or to

abstain from doing anything, with a view to obtaining the assent of

that other person to such an act or abstinence, he is said to make a

proposal”.6

Different Kinds of Form (īghah):

In Islamic Law offer and acceptance can be conveyed in a number

of ways namely:

a) By Words: There is no dispute amongst the jurists as regards

the conclusion of contracts through words. The reason for this is

that words are considered to be the basis of all kinds of expression

and other things can only take their place in cases of necessity.

3 Majallah, Art. 101.

4 Council of Islamic Ideology, 14

th report on Contract Act 1872, 1984,

5 Federal Shariat Court, Suo moto examination of laws in the contract

Act. 1986, p.5. 6Mullah,D.F.,The Contract Act, 1872,Lahore: Mansoor Book

House,1987,Section 2.

Elements of Contract: Form (Sīghah)

27

A basic rule in Islamic Law, however, is that the basis to be

considered in contract is the meaning and not words and forms.7 It

is for this reason that the jurists have not fixed particular words for

the formation of particular contracts. Whatever conveys the

meaning with clarity is considered sufficient for the formation of

the contract. It is all the same whether the words are explicit or

implicit. However the Shāfi„īs and anbalīs exempt from the

above rule certain contracts. Thus, the words used for the contract

of marriage are nikā or ziwāj rather than gifting or ownership.

Thus if a woman were to say. “I gift myself to you” or “I make

you my owner” then the contract of marriage will not be deemed

to have been concluded according to these schools.8 From another

viewpoint such postulation creates a difficulty for those witnessing

such contracts. The anafīs and Mālkīs do not recognise the above

exceptions.9

Tense: In order to avoid any degree of uncertainty, Islamic Law

requires that the words must convey the past tense. Thus, if A says

to B: “I have sold this house to you for Rs. 100,000 and B replies I

have accepted”, a contract is said to have taken place. A contract

concluded in the future tense is invalid. A contract made through

the present tense can be concluded if it is accompanied by some

other evidence (circumstantial) showing that the intention is to

conclude the contract presently and not in the future.

As regards amr (command) the Jurists disagree as to whether

the īghah in the form of a command or order (amr) is sufficient to

constitute an offer. Majority of them are of the opinion that it does

as it expresses the intention of the parties quite clearly.10

anafī

7Abd al-Karīm Zaydān, al-Madkhal li Dirāsāt al-Sharī„ah al-

Islāmiyyah, Bughdād: Maktaba al-Quds,1982, p.92. 8 Shirbīnī Mughnī al-Muhtāj,Cairo: Sharikah wa Mabaah Muafā al-

Bābī al-alabī,1933, vol.3, p.532. 9 Ibn al-Humām,Fath al Qadīr ,Cairo: Muafā al-Bābī al-

alabī,1387/1968,vol. 5 p.76. 10aābal-malkī, Mawāibal-jalīl,Tripoli:1329;4:228, Muammad ibn

Amad Dusūqī, Arafah, āshiyahala al-Shar al-Kabīr,Cairo: Īsā al-

Bābī al-alabī,1931, vol. 3:p.3; Ibn Rushd, Bidāyat al-Mujtahid

,Lahore: Maktabah al- Ilmiyyah,1984,vol.2;p 168.


28

jurists, on the other hand, hold the opinion that it is not to be

allowed even if it is accompanied by circumstantial evidence.

These Jurists consider the imperative form of īghah as a demand

for an offer.11

b) Writing: The majority of jurists (except the anbalīs) are of

the view that contracts can be concluded through writing,

irrespective of whether the parties are present in one majlis, i.e.,

contracting session or one of them is missing. It is customary in

event of absence of one party that an offer may take the form of a

letter.

Some of the Shāfi„ī jurists have opposed this opinion

maintaining that the one who is capable of contracting through

spoken words must not resort to writing. According to these

jurists, contract in writing is allowed only when the person is

unable to speak.

c) Gesture or Indication: The anafīs and Shāfi„īs are of the

opinion that forming contracts through gestures or indications is

not allowed for one who can speak or write, because spoken words

and writing serve a more powerful form of expression of

willingness than gesturing. The Mālikī jurists, however, permit

such contracts as the rule according to them is that, whatever

conveys the willingness of the parties is sufficient, irrespective of

whether words are used or not.

d) By Conduct: This is termed as mu„āāh in Islamic Law. For

example, A says to B: “I sell you this book for Rs.10 B places

Rs.10 on the counter and picks up the book. The majority of jurists

allow this form of concluding a contract, but with the following

conditions:

i- Conduct must be from both sides: Delivery of counter values

must be from both sides. Like a buyer asks the seller the price of

an item and the seller mentions a price. The buyer then hands over

the money and the seller delivers the item to him.

11

Abū Bakr ibn Masūd Kāsānī, Bādā‟i al-Sanā‟i ,Cairo:Sharikh al-

Mabūāt al- Ilmiyyah,1909-1910,vol.5, p.133.


29

ii- There must be an intention: Conduct should be based on

consent of the parties to the extent that no presumptive evidence

that exists negates the existence of consent.

iii- That the item must be of small value: The Muslim jurists are of

the view that in order to form a contract through conduct it is

necessary that the subject matter of the contract must of a small

value like bread meat etc. and not expensive, like house, land, gold

or silver. However, Mālikī jurists allow even in expensive items.

The above conditions depend mostly on customs prevailing in the

area. 12

The Shāfi„ī Jurists do not allow the formation of contracts

through conduct.13

Condition necessary for īghah (Form)

As stated earlier, the īghah (form) comprises an offer (ījāb) from

one party and an acceptance (qabūl) from the other. Muslim

jurists, however, have laid down certain conditions for offer and

acceptance without the fulfilment of which the contract cannot be

concluded. These conditions are:

(a) conformity of the offer and acceptance on the same subject

matter; and

(b) issuance of the offer and acceptance in the same session

(majlis).

(1) Conformity of the offer and acceptance on the same subject

matter: It is necessary that the acceptance must conform to the

offer in all its details irrespective of whether such conformity is

express or implied.

(2)Issuance of the offer and acceptance in the same session of Contract: According to the jurists when an offer is made, it must

be accepted in the same meeting. However, the promisee is

allowed to think over the offer for some time. The basis of this

viewpoint is a precept of the Holy Prophet (s.a.w.s.). “The

contracting parties have the right of option until they separate”.14

12

Ibn Qudāmah, al-Shar al-Kabīr,Beiut:Dār al-Fikr,1405/1985,vol.3

p.3. 13

Shirbīnī, Mughnī al-Mutāj vol.2, p.3. 14

Bukhārī, aī, Kitāb al-Buyū΄, no.2112, p.417.


30

Opinion is divided among scholars in regard to the

interpretation of the phrase “until they separate”. According to

Imām Abū anīfah it is the separation from a particular topic and

not from the place of session. This means that if the parties

complete the offer and acceptance and then start discussion on

some other topic, the contract is not liable to be cancelled at

option. arat „Umar said: “Sale is either a concluded deal or deal

subject to option”. Imām Shāfi„ī and Imām Amad, on the other

hand, hold that separation should be bodily separation from the

place of negotiation.

However, both these group are unanimous on the point that a

contract must be completed by offer and acceptance in the same

meeting unless one party reserves for itself the right to think over

to ratify or to revoke the contract later.

Commenting on the condition of unity of contract session the

Federal Shariat Court has observed the following:

A narrow interpretation of Majlis would mean that

the offer of the promisor should be accepted without

any delay and without giving the promisee any

opportunity to think or consult someone in order to

make up his mind. This may be practicable in small

transactions but will fail in bigger transactions,

which may require considerable inquiry. Thus, if an

offer is made for sale of a factory, it will require

inquiry into the title, power to sell, value of

machinery, value of building, its liabilities, if any,

profitability etc. If the Majlis is interpreted to mean

single session, no one will consider purchasing a

property.15

The Court further noted:

The language of the above-mentioned tradition

demonstrates that it was only meant to denote the

15

Fedral Shariat Court of Pakistan, Suo-Moto examination of Laws in the

Contract Act, 1986 p.8.


31

law of revocation, thus if two parties agree to enter

into a contract in one meeting, each of them shall

have a right to retract from it till they separate. This

appears to be the object. Its other object is that the

offer must be taken seriously. To some modern

scholars the word “meeting” is only a legal fiction

in that whatever time is taken by the promisee to

communicate his acceptance may be called the

continuance of the same meeting.16

Does this adīth pose a practical problem for entering into

bigger transactions as the Federal Shariat Court has observed? The

answer is 'No'. The reason is that even if the contracting parties

conclude the transaction in one session and observe the

requirement of majlis, they still have the right to think over the

transaction and revoke it within a specified time. This right is

known in Islamic Law as “option of stipulation” (Khiyār al-Shar).

The option of stipulation is the power by virtue of which one of

the two contracting parties can give his final assent to the contract

within a specified time. Islamic Law recognizes this right for the

contracting parties. As such, if a purchaser, while giving his

consent to the offer, retains the right to accept or reject it within

three days, the contract will not be binding on him during that

period. This means that Islamic law provides a mechanism to

overcome the problem caused by the restriction of unity of

session.

It is pertinent to point out here that the requirement of unity

of session does not apply to contract of agency, making bequest

and appointment of an executor (īā) for the property of minor.

Lapse of offer in Modern Law

The Contract Act of Pakistan does not fix any time or place during

which or when the offer remains effective for the promisee to

accord his acceptance. Section 5 and 6 deal with the question of

revocation of offer. Section 5 provides that the revocation of

proposal can be made before communication of the acceptance to

16

Ibid.


32

the proposer by the promisee. Similarly, the acceptance can be

revoked before its communication. Section 6 deals with the modes

of revocation. Thus revocation can be affected:

(1) through communication of a notice of revocation;

(2) by lapse of time prescribed for acceptance in the proposal for

acceptance;

(3) by lapse of reasonable time;

(4) by failure of the acceptor to fulfil a condition precedent to

acceptance; and

(5) by death or insanity of the proposer, when the fact of his

death comes to the knowledge of the acceptor before his

acceptance.17

This method can be followed by Islamic Law also since it

facilitates the contract. Moreover, it is in the interest of the public.

It goes without saying that realisation of the public interest is an

objective of the Sharī„ah. Such methods may also be justified

under the rule: “Hardship causes giving of facility”18

and the rule:

“What is not prohibited is permitted”.19

Causes of Cancellation of Offer (Ījāb)

There are five causes due to which an offer ceases to exist. These

are:

1. Withdrawal of offer by the maker: The majority of Muslim

jurists are of the opinion that an offer can be withdrawn at any

time before its acceptance by the other party. The anafīs call this

the “option of withdrawal”. It is permissible to them, as the rights

of the other party have not been linked with the subject matter as

yet. The Mālikīs on the other hand do not give the maker of an

offer the right of withdrawal. If the other party accepts the offer

after the withdrawal but within the same session, the contract

becomes binding.

17

See Contract Act, 1872, Section 5,6. 18

Moammad idqī al-Būrnū, al-wajīz fī- īā Qawāid al-Fiqh al-

Kulliyyah, Beriut:Mu'ssasah al-Risālah,1st edition 1404/1983, p.129.

19 Ibid, p.109.


33

2. Death of a party or loss of its capacity: The death of either

party before acceptance causes the offer to lapse. Similarly, if

there occurs a loss of capacity or the party becomes insolvent, the

offer ceases to exist. The „Ibāiyyah, a sect of the Khawārij,

however, hold that the offer once issued does not cease to exist

due to death or loss of capacity but can be accepted by the other

party to complete the contract. They also maintain that an

acceptance can be made by survivors of a party to whom the offer

was made. In other words rights can be inherited.

3. Refusal of the offer: The offer can be rejected by words or

conduct.

4. Termination of the majlis: The offer will be deemed

cancelled by the termination of Majlis before acceptance from

the other party.

5. Destruction of the subject matter: The destruction of the

subject matter wholly or in part leads to the lapse of the offer.

Thus the existence of the subject matter is a condition for the

existence of an offer.20

Conclusion

The above discussion leads to the following conclusions:

◘ A Contract has three elements: form (offer and acceptance),

the contracting parties and subject matter.

◘ ‟Ījāb (offer) in juristic literature signifies the willingness of a

party to do something positive. The literature is silent on

whether abstinence of a party from doing some thing also forms

ījāb or not. In our view ījāb in the sense of abstinence is also

acceptable in the Sharī„ah on the basis of the rule of

permissibility discussed in the first chapter of this book, which

provides that every thing is permissible unless explicitly

prohibited.

◘ Offer and acceptance can be conveyed by spoken words, in

writing or through indication and conduct.

20

assān, ussain āmid, al-Madkhal li Dirāsah al-Fiqh al-Islāmī,

pp.252-254.


34

◘ It is a requirement of Islamic Law that acceptance should

conform to offer in all its details and that the offer should be

accepted in the same meeting.

◘ The requirement of unity of session has been interpreted in

different ways. To the modern jurists, whatever time is taken by

the promisee to communicate his acceptance may be called

continuance of the same meeting.

◘ Option of stipulation (Khiyār al-Shar) is a mechanism

provided by Islamic Law to overcome the problem caused by

the restriction of unity of session. This option or right makes a

contract non-binding for the party, which has reserved that right

within a specified period.

Chapter-4

Elements of the Contract: Subject-

Matter

The second essential element of a contract is its subject matter,

which includes a number of things; namely, commodity,

performance, consideration and object of the contract. The term

“subject-matter” is applied to all of these things. Islamic law does

not hold consideration as an independent element of contract. The

reason is that the contractual obligation of one party according to

Islamic law is consideration for the contractual obligation of

another party. In a contract of sale, the commodity is the

consideration for the purchaser and the price is the consideration

for the seller. The object of the contract is also covered under

subject matter.

Condition Relating To Subject-Matter

Islamic law has laid down the following conditions for the subject

matter.

1. Legality of subject-matter

The commodity, service or performance must not include things

prohibited by the Sharī„ah like wine, pork, intoxicants, and

prostitution. It is forbidden for a Muslim to acquire or transfer

through contract any thing that the Sharī„ah has declared arām.

Since adultery, obscenity and immorality are prohibited by the

Sharī„ah, any contract or transaction that entails these evils or

promotes them in any way is also forbidden. From this it is


36

established that the subject matter of a contract must be such in

which transactions are legally permissible. The list of things

prohibited by the Sharī„ah has been affirmed in the Qur‟ān and the

Sunnah. This includes wine, flesh of swine, blood or animals,

which have died naturally or have not been slaughtered according

to Islamic teachings. Contracts involving such things are not

permissible, especially when the contracting parties are Muslims.

Muslim Jurists are divided on the sale of milk of a woman and the

hair of human beings. Some Jurists allow it because according to

them, milk and hair are pure and beneficial. Other Jurists disallow

this sale on the basis that these are a part of man. Musical

instruments are also included in the things proscribed by Islamic

Law, provided the contracting parties are Muslims.1 Contracts for

wine, swine and musical instruments are, however, allowed for

non-Muslim citizens of an Islamic state. Sale of human blood

today for the purpose of transfusion and donation and the sale of

human eyes can be covered by the principle of necessity.

Articles of public property also constitute forbidden

commodities in private transactions. Thus, a mosque cannot

constitute the subject matter of a contract of sale, because its use

cannot be passed on to an individual.2

The legality of subject matter further requires that the

commodity should be owned by some one. Thus, public property

is excluded and cannot be the subject matter of a contract. The

same applies to other things, which are yet to be owned like fish in

the sea etc. As regards public property, however, the state is

nowadays considered similar to a person capable of owning

property.

Legality of subject matter also requires that there should be

no encumbrance or right attached to it. An example in this regard

is sale of mortgaged property to which the rights of the

creditor/mortgagee are linked.

1 Kāsānī, Badā‟i„ al-Sanā‟i„, vol. 5, p.144.

2 Abū Zahrah, al-Milkiyyah wa Nazriyyat al-„Aqd, p.255.

Elements of the Contract:Subject Matter

37

2. Existence of subject matter

The subject matter should either be in actual existence at the time

of contract or it should be capable of being acquired and delivered

to a prospective buyer in the future. Transactions, which involve

an element of uncertainty and risk with regard to the existence and

acquisition of the subject matter, are forbidden in Islamic Law.

Examples of such transactions are as follows:

(a) fruits on tree at the beginning of the season when their quality

is yet to be established;

(b) sale of fish still in water;

(c) milk in the udders of an animal;

(d) sale of standing crops (which are not free from getting

spoiled );and

(e) foetus yet in the mother‟s womb.

Commenting on the practice of selling fruit trees before

they begin to blossom, Anwar Iqbal Qureshi writes:

It is unfortunately a custom with us that fruit trees are

sold before they begin to have blossoms upon them. This

is known as spring sale. This spring sale, for instance, of

mangoes is affected before trees begin to have blossoms.

The natural consequence of this is a definite loss to one

of the parties to the transaction. What happens usually in

such transactions is that people make a general estimate

of the produce in fruits. But no one can be aware of the

unknown in which case this amounts to a form of

gambling.3

As regards non-existent object, Muslim Jurists, in general,

hold the view that their sale is invalid. They base this opinion on

the following tradition of the Holy Prophet (s.a.w.s): „Sell not

what you do not have‟.4 The only exception to this rule is salam

sale where the purchaser pays price in advance while delivery of

3 Anwar Iqbal Qureshi, Islam and Theory of Interest, Lahore;

Sh.Muhammad Ashraf publishers,1991, p.90. 4 Abū Dāwūd, Sunan, no.3503.


38

the subject matter is postponed to a specified future date. They

restrict salam to those commodities, which can be determined in

terms of quality and quantity. This means that future goods are not

saleable in ordinary sale.

Wahbah Zuhāylī explains the viewpoint of the fuqahā‟ on this

issue in the following words:

The object of contract must be present during the

contracting session. Contracting over a non-existent

object is invalid, like selling crop before it is visible, on

the assumption that the crop might not appear. Equally

prohibited are cases involving what is known as “the

fear of non-existence (khaar al-„adam) like the

assumption that a foetus might not survive upon

birth…This requirement is mandatory in the anafī and

Shafi„ī schools, regardless of whether the transaction

involves commutative (mu„āwaāt) or gratuitous

(tabarru„āt) contracts.5 Any transaction involving

ma„dūm is void whether the case is sale (bay„), gift

(hibah) or pledge (rahn). This view is based on a

tradition of the Prophet (s.a.w.s.) wherein he is reported

to have prohibited the sale of the foetus of an animal

(bay„ abal al-ablah)6 as well as the sale of an embryo

(al-maāmīn)7 and sperm (al-malāqī).

8 He is also

reported to have prohibited people from dealing in

transactions where the seller did not possess the object.

This is because object was treated as ma„dūm during the

contract. They have established an exception to this

general rule, i.e., the prohibition of bay„ al-ma„dūm in

cases pertaining to sale by advance (salam), contract of

manufacturing (istinā„). These transactions are

approved, despite the absence of the object of contract,

5 Kāsānī,Badā‟i al-anā‟i, vol. 5, p.187,Shiribīnī ,Mughnī al-Mutāj,

vol. 2, p.20. 6 Shawkānī, Nayl al-Awār, Lahore; Anār al-Sunnah al-

Muammadiyyah, n.d.vol. 5, p.156. 7Haythamī, Majma΄ al-Zawā'id, vol.4, p.104.

8 Ibid, vol.4, p.104 .


39

by way of istisān (juristic preference) in order to cater

for the needs of mankind”.9

Ibn al-Qayyim, an eminent anbalī Jurist, has differed with

the majority opinion. He is of the view that non-existence of an

object does not constitute a reason for prohibition. He tries to

denounce the confusion between uncertainty and non-existence.

He says:

“There is nothing in the Qur‟ān nor in the Sunnah that

asserts the view that contracting over a ma„dūm (non-

existing object) is disallowed. What is available in the

Sunnah regarding transactions involving existent

commodities is contained in the adith : “do not sell

what is not with you (i.e. not in your possession)”. The

adith indicates that the „illah (legal effective cause)

here is not „adam or non-existence but gharar

(uncertainty). The uncertainty is due to the inability to

deliver the subject matter of the contract, for instance a

runaway camel (al-ba„īr al-shārid). Whenever the „illah

is removed the hukm too stands removed, for are you not

aware that the Lawgiver has permitted „ijāara and al-

musāqāh because of the absence of uncertainty? The

Lawgiver, instead, disallowed the sale of a runaway

camel because of the element of gharar inherent in it

even though it is in existence. Similarly, the lawgiver

has disapproved the hire of a camel in cases where the

owner of the camel cannot deliver the animal for use.

Above all, this principle applies to all forms of

commutative contract in contrast with al-waiyyah

(bequests). Al-Waiyyah is a pure gratuitous contract to

which gharar does not apply. Thus a contract

concerning a will created over an absent subject-matter

is a valid contract.10

9 Zuhaylī ,al-Fiqh al-Islāmī wa Adillahtuhū, vol.4, pp.173-174.

10 Ibn al-Qayyim, I' lām al-Muwaqqi'īn Cairo:Maktabah al-Kulliyyah al-

Azhariyyah,1968,vol. 1, p.358.


40

As regards the adth: “Sell not what is not with you”, other

jurists have advanced three different interpretations, which are as

follows:

1. “Sell not what is not with you” means not to sell what you do

not own at the time of sale. Many prominent „Ulamā‟ of the

various schools have recorded the view that the seller must

own the object of sale when he sells it, failing which the sale

will not be concluded, even if the seller acquires ownership

afterwards. The only exception to note in this context is the

forward sale of „salam‟ where ownership is not a pre-

requisite.

2. The jurists and „Ulamā of adīth have generally held the view

that the adīth under discussion applies only to the sale of

specified objects but not to fungible goods as these can easily

be substituted and replaced. It is thus stated that prohibition in

question is confined to the sale of objects in rem (buyū‟ al-

a„yān) and does not apply to sale of goods by description.

Hence when Salam is concluded over fungible goods that are

commonly found in the locality, it is valid even if the seller

does not own the object at the time of contract. Imām Shāfi„ī

has also held that one may sell what is not with him provided

that it is not a specified object, for delivery of a specified

object cannot be guaranteed if the seller does not own it.

3. The third position some 'Ulamā have taken on the

interpretation of this adīth is that sale of „what is not with

you‟ means sale of what is not present and the seller is unable

to deliver. This is the view of Ibn Taymiyyah and the Mālikī

jurist al-Bājī.11

They contend that the emphasis in the adīth

is on the seller‟s inability to deliver, which entails risk-taking

and uncertainty. If the adīth were to be taken on its face

value, it would proscribe Salam and a variety of other sales,

but this is obviously not intended. It is quite possible that the

11

Abū al-Walīd Muammad ibn Amed, Ibn Rushd, al-

Muqaddimāt,Cairo:Mabaah al-Saādah,1325/1907, vol.2, p.221; Ibn-e-

Taymiyyah, al-Qiyās fī al-Shar al-Islāmī Cairo:Maktabah al-

Salafiyyah,1328AH. pp. 26-27.


41

seller owns the object and yet is unable to deliver it or that he

possesses the object but does not own it , in either case he

would fall within the purview of this adith. The emphasis in

the adīth is, therefore, not on ownership, nor on possession,

rather it is on the seller‟s effective control and ability to

deliver. Thus the effective cause („illah) of the prohibition is

gharar on account of inability to deliver.12

Among modern writers, Yūsuf Mūsā, „Alī abd Al-Qādir and

Yūsuf Al-Qaradāwī have drawn attention to the fact that the

market place of Madīnah during the Prophet‟s (s.a.w.s.) time was

so small that it did not offer assurance of regular supplies at any

given time. The adīth, therefore, prohibited sale of objects that

were not available at the time of sale. This is perhaps, what is

indicated, in the adīth in which akīm b. izām said that people

would come to him asking to sell them what he did not have. In

contrast, the modern markets are regular and extensive which

means that the seller can find goods at almost any time and make

delivery as may be required. We also note that the contract

normally operates on a deferred basis that gives the seller a fair

amount of time to buy what is required in order to make delivery,

if necessary, within the contract period. When we compare the

Madinah market at the time of the Prophet (s.a.w.s) with a modern

market, we are faced with a different reality. Given the means and

facilities that are available today, the fear of failure to find the

goods and make delivery, which was the basic rationale behind the

original prohibition, no longer exists.13

3. Certainty of delivery

The ability or capacity to deliver the subject-matter of the contract

at the time of conclusion of a contract is an essential condition to

make a valid contract. If such a capacity is lacking, the contract is

void and this position is not altered by the fact that the seller was

able to deliver the goods after the time of contract. This condition

is applicable to contracts of sale as well as mortgages and pledges.

The condition is dictated by the nature of the contract and the

12

Zainuddin Zafar, “Bay‟ al-Ma„dūm: An analysis, paper presented in

International Islamic Capital Market Conference Malaysia 1997. 13

Ibid.


42

purpose, which such contract is supposed to serve. Thus, in a

contract of sale the purpose is that the buyer should be able to

exercise the authority and benefits of an owner. If such a capacity

is lacking the purpose fails. The Muslim Jurists, therefore, prohibit

the sale of a stray animal, whose whereabouts are not known, or

fish in the sea or birds in the air.14

4. Precise determination of Subject Matter

The general principle in Islamic Law is that the subject matter

must be precisely determined as regards its essence, quantity and

value. Similarly, if the subject matter is an obligation or

performance, it must be precisely determined at the time of the

contract otherwise the contract will be invalid. Indetermination in

a contract belongs to variety of things i.e. genus, specie, quality,

price, and value. An example of indetermination with regard to

genus is where a seller was to say: “I am selling you an ewe from

this flock or a dress from this bundle”. Such sale is irregular

(fāsid) because the particular ewe or dress has not been

indicated.15

Similarly, if price of an item is not fixed or its fixation

is left to the arbitration of a third party, this too is indetermination.

This indetermination renders a contract fāsid. The subject matter

is ascertained by the acquisition of such knowledge that does away

with all uncertainty and vagueness likely to lead to dispute among

contracting parties.

There are two ways, in the opinion of the Jurists, to determine

subject matter.16

First Method: Examination

The subject matter becomes known and specified when the parties

to a contract see and examine it at the time of contract. If the

subject- matter is present at the session (majlis) of a contract then

the majority holds its examination to be necessary. Failure of the

parties to examine the subject-matter while it is present invalidates

the contract.

14

Kāsānī, Badā‟i„ al-Sanā‟i„ vol. 5, p.147. 15

See Siddīq al- Darīr, al-Gharar fī al-„Uqūd, Islamic Development

Bank ,Jeddah, p.20. 16

assān,al-Madkhal, p.311.


43

Second Method: Sale by description

The second method of sale acknowledged by the Jurists is sale by

description. Such description must be detailed enough to do away

with any vagueness and uncertainty. If the goods or property to be

sold are already known, like a house or horse of a seller who has

only one house or horse, a description highlighting its

specification or characteristics would be deemed to be sufficient.

But if the sale is of fungible (mithlī) goods then genus, kind and

quantity must be described. This method is applicable where the

goods are not present in the majlis of the contract. The majority of

the jurists allow it. The Shāfi„īs, however, do not allow it and

stipulate actual examination at the time of the contract as a

necessary condition. Examination is the sole medium through

which sale is possible according to these jurists.17

Some jurists allow a sale even if the goods have not been

examined or described. This is achieved by granting to the buyer

the option of sight or examination after the contract. In this case

the buyer can reject the goods on examination. This option can

also be exercised when the goods have been sold by description

only. Some of the jurists give an absolute right to reject the goods

on sight even if they conform to the description.18

Others restrict

such right to a case where the goods do not conform to the given

description.19

We can conclude from the above that the majority of the

jurists allow sale by description and it is only the Shāfi„īs who

insist on examination and sight at the time of the contract. The

jurists distinguish between fungible goods and non-fungible

goods.

5. Legality of Object and Underlying Cause

The validity of contract requires that the object and the underlying

cause must be legal. Thus a contract made for the use of a property

in commission of an offence, when the parties know this fact, is

17

Shīrāzī, al-Muhadhdhab, vol. 1, p.263. 18

kāsānī, Badā‟i„ al-anā‟i„ vol. 5, p. 292. 19

Dasūqī ,āshiyah al-Dasūqi vol.3, pp.23-24, Shīrāzī, al-Muhadhdhab

vol.1, p.264.


44

unlawful. Similarly, selling a weapon to a person who will kill an

innocent man with it is illegal if the seller has knowledge of this

fact. It means that the intended objectives of the contract should

not oppose the will and intention of the Lawgiver.

Modern law also lays emphasis on this point. Thus, all

contracts which promote immorality, or are against public policy,

or harmful to a person or property of a third party, or which are

forbidden by law are deemed void and of no legal effect. It is for

this reason that courts do not countenance a claim to enforce a

promise to pay for any criminal act.20

Under Kuwaiti law, this

concept is contained in Article 167 that governs maall (subject-

matter). It reads: “The motivating purpose must be legal”.21

The Egyptian Civil Law provides that if there is no cause of

obligation, or if a cause is contrary to the general system or morals

the contract will be invalid. Thus, the sale of weapons whose

import is prohibited is invalid on account of the illegality of the

cause and knowledge of the seller regarding this prohibition.

Likewise a contract of loan intended for getting money for

gambling is invalid, when the moneylender knows about this

intention. The sale or leasing of a house is also invalid if the

purchaser or lessee intends to turn it into a brothel when the seller

or lessor knows of this intention”.22

In declaring a contract invalid on account of illegality of

cause, Islamic law stipulates that both the contracting parties must

have knowledge of such illegality. Thus, ignorance of such a fact

on the part of either of the contracting parties would not render the

contract invalid. This is to ensure the security and stability of

contracts.

Muslim Jurists have decided on the above basis that the sale

of grapes to a person, who will extract wine from them, is invalid,

because the intention and motivating cause is unlawful. Likewise,

a contract of marriage to facilitate re-marriage between divorced

20

Business Law, London: Cavendish publishing ltd. p.73. 21

Kuwaiti Civil Code, 1980, section 167. 22

See Abd al-Razzāq Sanhūrī, ,Maādir al-Haq,Cairo:Dar al-

Marifah,1968 vol.4, p.30.


45

couple is invalid, because such a contract does not intend to bear

the consequences of marriage. At the same time intention in such a

contract disagrees with the intended objectives of the Lawgiver.

On the same grounds, a contract to sell something on credit say,

for Rs. 100/- and buy it back for say, Rs. 80/- with immediate

payment, is held to be invalid, because the purpose of the parties is

to conclude a usurious transaction which is prohibited in the

Sharī„ah. The mere form of the sale does not exclude it from

purview of usurious loan contracts.

In this regard the eminent jurists, Imam Ibn al-Qayyim

writes:

The proofs and rules of the Shari„ah indicate that

intentions are taken into account in contract, that affect

their validity and invalidity, and lawfulness and

unlawfulness of a contract, but more seriously that it

affects the action which is not a contract with respect to

making it lawful and unlawful. The same item becomes

lawful sometimes and unlawful at other times depending

on variation of intention and intended objectives.23

Conclusion

◘ The subject- matter, i.e., commodity or performance or

service should be lawful.

◘ The object of contract should be either in actual existence at

the time of contract or it should be capable of being delivered

in future.

◘ Contracting over a non-existent object is disallowed only

when there is grave uncertainty regarding its acquisition and

delivery to the buyer.

◘ The object of contract should be deliverable.

◘ The subject-matter should be precisely determined at the time

of contract.

◘ The subject-matter can be determined either by the

examination or by the description.

23

Ibn al- Qayyim , I‟lām al-Muwaqqi‟īn, vol. 3, p.96.


46

◘ The validity of contract requires that its motivating cause

should also be according to requirements of the Sharīah.

Chapter -5

Elements of Contract contractual

Capacity of Contracting Parties

A basic requirement for conclusion of a valid contract is the

necessity that the contracting parties should be qualified to enter a

contract. Thus, such parties are required to possess legal capacity

(ahliyyah) for this purpose. The capacity which is required for

concluding a contract is termed in Islamic Law as capacity for

execution or Ahliyyay al-„Adā.

Capacity for execution or Ahliyyat al-Adā

The capacity for execution is defined as the “capacity of a human

being for the issuance of words and performance of deeds to

which the lawgiver has assigned certain legal effects.”1 On the

basis of this definition the capacity for execution is considered by

the jurists to be of three kinds.

i) Capacity for the Khiāb Jinā’ī: This is the capacity for the

issuance of words and the performance of deeds the legal effects

of which are worldly punishments. In other words whosoever

possesses such a capacity can acquire through his words and deeds

a liability for punishment. This is termed as the capacity for

punishment or the capacity for the khi āb jinā‟ī.

ii) Capacity for the Khiāb of ‘Ibādāt: It is the capacity for the

issuance of words and performance of deeds the legal effects of

which are produced in the shape of reward or thawāb in Hereafter

1 assān ,al-Madkhal, p.320.


48

and as well as the fulfillment of one‟s obligation in the present

world. This is termed as the capacity for Ibādāt or the capacity

for the khiāb of „Ibādāt.

iii) Capacity for the Khiāb of Mu’āmlāt: This is the capacity for

issuance of words and performance of deeds the legal effects of

which are exercise of rights and fulfillment of obligations for

contracts and other transactions. It may be called the capacity for

transactions or the capacity for the khiāb of mu„amalāt.2

The Condition of Ahliyyah-al-Adā: The requirement for ahliyyah

al-adā` is reason and discretion. The method to check whether a

person possesses faculties of reasons and discretion the lawgiver

has associated such powers with puberty. This is the view of the

majority.

The anafīs on the other hand acknowledge a deficient

capacity of execution for purposes of some transactions for a

person who has attained some degree of discretion though his

mental faculty is not fully developed. Thus, a minor who possesses

discretion can be assigned such a capacity. Here, again there is no

certain way of determining that the minor has attained this

capacity. Theanafī jurists ,however, fix the age of seven years

for the assignment of such a capacity. Anyone over seven who has

not attained puberty may be assigned such a capacity.A deficient

capacity is also assigned by the anafīs to one who has attained

puberty but his mental faculty is not fully developed mentally, like

the matūh (lunatic).

Complete and deficient capacities of execution:

The capacity of execution is then divisible into two kinds:

Deficient capacity is assigned to a non-pubert who possesses

some discretion and to the matūh (lunatic) who has attained

puberty yet lacks complete mental development.

A person who possesses a deficient capacity is not subject to

the khi āb jinā‟ī. Thus he cannot be held criminally liable. The

2 Ibid, p.328.

Elements of Contract contractual capacity of ….

49

reason for this is that the khi āb jinā‟ī is applicable only to that

person who can understand the Khi āb fully.

As regard „ibādāt the fuqahā‟ are unanimous that the

communication of Lawgiver addressed to the minor is by way of

recommendation and that there is reward (thawāb) for the

performance of the „ibādāt by such person. We are now concerned

with the capacity of such persons for the purpose of transactions.

The anafīs divide transactions into three kinds:

a) Purely Beneficial Transactions: These are like the acceptance

of a gift or of adaqah and are allowed to a non-pubert who can

discriminate and has been permitted to do so by his guardian.

b) Purely Harmful transactions: The granting of divorce,

manumission, adaqah, qar, hibah, waqf and waiyyah are not to

be entered into by the sabī mumayyaz (minor possessed with

discretion).

c) Transactions equally likely to result in profit or in loss: These are the sale, hire, and partnership. They are considered as

valid if permission of the guardian is granted. Thus, a deficient

capacity for execution is granted by the anafīs to the abī

mumayyaz. Other jurists refuse to acknowledge any kind of

capacity for the abī mumayyaz. The Khi āb according to them is

not directed towards the non-pubert at all; hence it makes no

difference whether the transactions are beneficial or harmful3.

Complete Capacity

Complete capacity is established for a human being when he

attains full mental development and acquires the ability to

discriminate. Thus, the requirement of this capacity is reason

(„aql) and discretion (rushd). Such a stage has been associated

with an external standard by the Lawgiver. This standard is

puberty. The sign of puberty is ejaculation in a male, and

menstruation in a female. In the absence of these signs puberty is

presumed to have occurred by the age of 15 in both male and

3 Amad Ibrahīm Bik, al-lltazāmāt fī al-Shar‟ al-Islāmī,Cairo: Dār

al-Anār,1944, pp.120-121.


50

female according to the majority of the jurists and at 18 years for a

male and 17 years for a female according to Imam Abū anīfah.

Attaining puberty in itself alone is not sufficient evidence that

a person has acquired complete capacity for execution. In addition

to puberty, the possession of rushd or maturity of action is also

deemed necessary.

Circumstances which affect the legal capacity of a person

There are certain factors, which impair legal capacity of a person

and prevent him from concluding contracts and making

dispositions in his property. These are as follows:

1 Junūn (Insanity):“Junūn is the mental derangement which,

except in rare cases, prevents a person from and dispositions

utterances”. It is divided into two kinds:

(i) Alī (regular) when a person attains puberty during his

lunacy.

(ii) ārī‟ (casual): which appears after a person has attained

puberty and developed sanity together with mature

understanding.4

Insanity eliminates the legal capacity of an individual because

its basis is intelligence and discrimination, and Insane is destitute

of that. As regards legal effects of the utterances and dispositions

of Insane, he is like a minor without discretion (abī ghayr

mumayyaz), which do not produce any effect. Islamic Law puts an

insane person under a guardian who looks after his affairs.

2. ‘Atah (lunacy or partial insanity): Ma„tūh is partial or

temporary insane person who acts some times like a sane person

and some other times like an insane person.

“ „Atah is defined as „the mental derangement of a person who is

confused in his speech and who speaks sometimes like sensible

person and sometimes like lunatics”.5

4 Zaydān, al-Madkhal, p.317.

5 Ubaid Allah ibn Masūd, Sadr al-Sharīah, al-Tawī, al-Maktabah

al-Khayriyyah,1322 H., vol. 2, p.168.


51

Ma‟tūh is treated like a minor possessed with discretion (abī

mumayyaz). Thus, he is not allowed to enter contracts, which are

disadvantageous for him. However, he is allowed to conclude

beneficial transaction. As regards transactions that may equally

result in benefit and loss, his transactions will be considered valid

subject to verification by his guardian.

3. Forgetfulness: Forgetfulness is defined as: “A circumstance

that befalls a man without his volition causing loss of

remembrance of something.6

The majority of jurists are of the opinion that a contract

concluded through mistake or forgetfulness is not a contract at all.

They rely for this on the words of the Holy Prophet (s.a.w.s)

contained in a Hadīth in which he said: “My Ummah is forgiven

for that which they have done through mistake or forgetfulness or

under coercion”.7

The Hanafis oppose the majority and declare that statements

made by mistake or forgetfullness are valid for the formation of

contracts. They maintain that the door will otherwise swing open

for setting up false defences and the security of transactions

demands that this should not be allowed.

4. Safah (Prodigality and Weakness of Intellect): Safah has

been defined as follows:

(i) “Safah is that weakness of intellect which urges a person to

act with respect to his property contrary to the dictates of

intellect with the non-existence of mental disorder.”8

(ii) "Safah is the disposition of one‟s property contrary to the

dictates of the intellect and the Shari„ah by spending it

without righteous purpose, squandering and using of more of

it than necessary despite the persistence of one‟s intellect in

6 assān, al- ukm al-Shar΄ī īnda al-Uūliyyīn, Dār al-Nahah al-

Arabiyyah,1972, p.186. 7Haythamī, Majma` al-Zawā'id, vol. 6,p.250.

8 Amīr Badshah, Taysīr al-Tarir, Cairo:Mutafā al-Bābī al-

alabī,1351AH,vol.2, p.300.


52

reality.”9 Safah is opposite of the word rushd which signifies

the handling of financial matters in accordance with the

dictates of reason. Thus, rashīd is a person who can identify

avenues of profit as well as loss and act accordingly to

preserve his wealth. This is majority viewpoint. The Shāfi„ī

Jurists, on the other hand, maintain that rushd is maturity of

actions not only with regard to financial matters but also in

matter of dīn. Thus, a person who attains puberty and handles

his business sensibly but he doesn‟t abide by the rules and

prohibitions of Lawgiver,is not rashīd in the opinion of Imām

Shāfi„ī. An eminent Shāfi„ī Jurist Imām Nawawī declares

rushd to be present in a person in the following

circumstances:

(i) when he is able to perform his religious duties properly;

(ii) when he behaves reasonably in his personal affairs;

(iii) when he abstains from every thing that brings him

reproach; and

(iv) when he is not a spendthrift, i.e., he does not waste his

wealth by allowing himself to be deceived in commercial

transactions by obvious fraud.10

A person is considered eligible to take charge of his wealth if

he is both bāligh and rashīd. This is the general view. However,

Imām Abū anīfah maintains that a person who attains the age of

25 years, must be given his property irrespective of the fact that he

attained rushd or not. He also maintains that if property is given to

one who attains majority and rushd and subsequently loses his

rushd while yet under 25, will not be subjected to interdiction

(ajr).11

Kuwaiti Civil Code provides that transactions of the safīh

will, after determination of the judgement be treated in the same

way as that of a minor without discernment. Any transaction

arising from him before he is proclaimed Safīh is neither Bāil nor

9 assān, al- ukm al-Sharī īnda al-Uūliyyīyn, p.210.

10 Nawawī ,Muiyyuddīn Abū Zakariyyah, Minhāj al-ālibīn, translated

into English by: E.C.Howard,London:1977,p.167. 11

Abd al- Sattār al-Jibālī, Akām „Aqd al-Bāy‟. Cairo: Jamiah al-

Azhar,1993, P.49


53

voidable except where the contract has been concluded in

collusion with anticipation of the restriction, that is fraudulently

and with knowledge of the impending lack of capacity.12

The safīh

may validly make waqf or bequest dispositions if the court

authorizes him to do so.13

The court has the power to give absolute or limited

authorization to a safīh to handle his affairs whether wholly or in

part. In special cases it may require the safīh to give account of his

affairs.14

The court may also restrain or withdraw his authorization

if it sees just grounds for doing so.15

A safīh who has been given permission to administer personal

affairs, also has capacity to enter into transactions out of the

bounds of that permission set by the court especially for him.16

Procedure for exercise of interdiction:

The opinion of anafī jurists is divided on the issue as to whether

the interdiction should be by orders of court or the existence of

(safah) itself.

Imām Muammad holds that a safīh should be prevented

from disposing his property by the mere existence of safah without

necessitating the order of the court. Therefore, the existence of

stupidity in a person presupposes interdiction and its non-existence

requires its removal.

According to Abū Yūsuf interdiction will be imposed and

lifted by the order of the court. The result of this disagreement

becomes manifest in the dispositions of a safīh prior to placing

him under interdiction. These dispositions are valid and enforced

according to Imām Muammad. According to Abū Yūsuf they

remain suspended until the decision of the court.

12 Kuwaiti Civil Code, Art, 101 (1)

13 Ibid, 102. 14

Ibid., 103 (1). 15

Ibid., (103(2). 16

Ibid., 64.


54

The Iraqi Civil Code favours the opinion of Imām Abū Yūsuf

, hence, when a safīh is placed under interdiction by the court, he

becomes like a minor possessed with discretion. Iraqi Law allows

him to make bequest to the extent of one-third of his property.

5. Death-illness (mara al-Mawt): Death-illness has been

defined as follows:

Death-illness is that form of illness from which

death is to be apprehended in most cases, and illness

which disables the patient from looking after affairs

outside his house if he is a male, and the affairs

within her home if she is female, provided the

patient dies in such condition before a year has

passed.17

It is clear that death-illness means an illness from which

death is ordinarily apprehended in most cases.

To constitute a malady, death-illness (mara al-mawt) there

must be: (a) proximate danger of death, so that there is a

preponderance of apprehension of death; (b) some degree of

subjective apprehension of death in the mind of sick person; and

(c) some external indication, chief among which would be

inability to attend to ordinary avocations.18

Death-illness is considered one of the impediments to

disposition made to protect a specific public benefit such as

prohibiting a pledgee from disposing of the property pledged as

security with him in the interest of debtor.

Transactions of Marī mara al-Mawt: Transactions undertaken

by a person on his deathbed are of two types:

(a) Transactions without Consideration: A person seized with a

death illness is prohibited from disposing of his property

without any return within the limit of two thirds to protect the

interest of heirs, because his dispositions without any return

17

Amad assan, Principles of Islamic Jurisprudence, Islamabad:

Islamic Research Institute ,1993, p. 323. 18

Mulla, Mahomedan Law, p. 148.


55

such as donation, waqf, alms are considered a bequest, which

is permissible to the extent of one-third of the property only. If

he is in debt, he is prohibited to donate his property for it is

needed to pay his debt. He is, however, allowed to dispose of

property exceeding debt on the condition that it is taken out of

one-third of the property; failing which his heirs have the right

to nullify it.19

But if he is not in debt, or his debt is less than

his legacy, these dispositions will not be effective with respect

to his heirs except within one-third of the whole legacy if there

is no debt or within one-third of the remaining property after

the payment of debts. The reason is that these dispositions are

treated as will or bequest from that patient.

In order to consider his transaction a bequest or will in the

above meaning, three conditions must be fulfilled:

1. The transaction should be without consideration such as alms,

gifts and waqf or in consideration of a thing which is less

than fair price or sale at a price which is less than fair price or

buying a thing at a price which is more than fair price. Apart

from this, other transactions are valid and effective with

respect to the creditors and heirs and they have no right to

demand their revocation because it will be presumed that the

transactions were meant to meet the imperative needs of the

sick person.

2. The disposition should be made in material things. If it is

made in usufruct such as hire and share-cropping, it will be

effective with respect to the creditors and heirs. They will not

have right to revoke these contracts.

3. The disposition should be made in the very substance of

things, not in the revenue or profit derived from them. Any

assignment of profits arising from Shrikah or muarabah will

not be affected by this condition.20

b) Transactions for Consideration: If his disposition are for

consideration and are not in favour to any one as, for instance, it is

19assān Introduction to the study of Islamic Law, Sharīah Academy,

Islamabad ,International Islamic University, p.373 . 20

Ibid., pp.376,377.


56

a sale at a fair price, such disposition will be valid and effective in

the lifetime of sick person. The creditor and heirs will have no

right to nullify it after his death, because the rights of sick person

have priority over their rights. It will be assumed that this

disposition is for the imperative needs of sick person like food,

drink, and treatment. It is all the same whether the disposition,

which involves no favour, is meant for himself or any of his heirs.

Abū anīfah holds that if a disposition is made for any of the

heirs, the other heirs have the right to ask for nullification, even if

it were at a fair price, because the rights of heirs are attached to the

substance of the inheritance not to its value in his opinion. The

followers of Abū anīfah hold that the rights of heirs are like

those of creditors attached to the monetary value of the

inheritance, not to their substance. If he disposes at a fair price

without showing any favour nothing will be missed from the

monetary value of the inheritance.21

c) Other dispositions of Marī mara al-Mawt:

(a) Acknowledgement of debt: A person seized with death-

illness can make acknowledgement of debt during death-

illness. Such acknowledgement is valid and effective

with respect to his heirs, irrespective of the fact that it is

in favour of heir or a stranger. To Hanfi jurists an

acknowledgement of debt in favour of an heir is valid

and enforceable only when other heirs ratify it.

(b) Marriage during death-illness: The Marī mara al-

mawt can validly conclude a marriage contract during

death-illness, provided the dower money paid by him

does not exceed the amount of fair dower (mahr mithl)

In case it exceeds the amount of fair dower, it will be

treated as donation in the meaning of will which will be

enforced by the permission of heirs within the limit of

one-third of his estate.

(c) The divorce of marī mara al-mawt is valid, and will

be enforced. If the husband dies before the expiry of her

21

assān, al-Madkhal, p.350.


57

iddat. She is entitled to inherit from him. The reason

given being that repudiation by a man in his last illness

is nothing but a device to defeat the wife‟s right of

inheritance. But the husband is not entitled to inherit

from his wife. If she dies before the expiry of the iddat

for he, and not she was responsible for the rupture of

conjugal rights.

(d) Mushārakah and Muārbah contracts: A sick man on

deathbed can enter the contracts of mushārakah and

muārbah, because they relate to profit not to capital or

substance of things. The profit in partnership contract is

similar to usufruct in hiring and crop-sharing contracts

that are permissible for marī mara al-mawt. It is

pertinent to note here that the rights of heirs are attached

with a„yān (substance or thing) not with its usufructs or

profit. Moreover, the partnership comes to an end with

the death of this person, so it is in no way harmful for

the heirs.

6. Intoxication: Intoxication is a condition, which overtakes a

man on account of taking an intoxicant, and along with it his

intelligence remains suspended, being neither lost nor

diminished.22

The drunken person is one who is in a state of intoxication

due to the consumption of liquor and does not know what he is

saying. The Majority is of the opinion that a contract is established

by the statement of a drunken person and gives rise to all kinds of

rights and obligations of the contract. They argue (i) that he

became intoxicated out of his own choice, (ii) that he knew that

drinking was prohibited and a crime should not absolve a person

of the duties acquired by him.

The anbalī jurists are of the opinion that the statement of an

intoxicated person is not to be taken into account at all as he does

not intend what he is saying. He is just like an insane person or

one under duress. Some other jurists try to distinguish between

22

assān, al-ukm al-Shar'ī, p.204.


58

intoxication caused by illegal means and that caused by lawful

means. Intoxication is caused by lawful means in the following

cases:

(i) when a person drinks intoxicating liquor without

knowing that it is forbidden liquor;

(ii) when he is forced to do so under duress;

(iii) when he is about to die of thirst and no other drink is

available; and

(iv) when intoxicant is caused by drugs taken medicinally.

Those who prefer the stand of the anablīs give the

following arguments:

i) The intoxicated person doesn‟t intend what he says and

thus takes the ukm of one who is insane.

ii) It is not necessary that the intoxicated person is making a

bad bargain and in fact he may suffer if the contract is

declared invalid.

7. Taflīs (Bankruptcy): A person is considered bankrupt when

his debts exceed his assets, and court on the demand of his

creditors passes a prohibitory order restraining all alienation by

him, and directs the sale of his property for the benefit of his

creditors. The purpose of this al-ajr (interdiction), i.e., to restrict

al-muflis (bankrupt) in the right of disposal of his property is to

safeguard and protect the right of creditors and to prevent him

from carrying out transactions detrimental to his creditors. The

precedent for such regulation was set by the Prophet (s.a.w.s). It is

narrated that Mu„ādh ibn Jabal was a generous man and always

gave his possessions away. He was always in debt. His debts were

more than his property. So, he came to the Prophet (s.a.w.s) and

requested him to ask his creditors to withdraw their claims on the

debts. They, however, refused. The Prophet (s.a.w.s), later, sold all

Mu„ādh‟s property to pay the debts, to the extent that he had

nothing left.

8. Coercion: Coercion is to compel a person without having

such a right, to do a thing without his consent or through fear. It


59

is also defined as an action directed against a person, who

suppresses his true consent”.23

The contracts and dispositions

made under coercion are not valid according to the majority of

Muslim jurist. anfīs, however, maintain the contract of the

person coerced is valid but is suspended, on the extinction of

coercion. The mukrah (coerced person) has right to ratify it or

revoke it. They also hold that the contracts of marriage, divorce,

manumission are valid even with coercion.

Chapter -6

Delegated Authority

A person sometimes makes transactions on behalf of other people.

In such a case he is required to have, besides legal capacity, proper

authority to make a transaction. He derives authority either from

the person on whose behalf he enters into a contract or from the

Lawgiver. The authority in the former case is called agency while

in the latter case it is termed as guardianship.

The nature and scope of both the authorities, i.e., agency and

guardianship will be discussed in this chapter.

1. Contract of Agency (Wakālah):

Wakalah is to substitute an agent for the principal to perform on

behalf of that principal an act, which admits of representation. It

creates a fiduciary relationship that exists between two persons,

one of whom expressly or impliedly consents that another should

act on his behalf. The one on whose behalf the act is done is called

the principal (aīl) and the one who is to act is called agent

(wakīl).1

A number of legal texts provide justification for the contract

of agency. Some of them are produced below:

1Zaydān, al-Madkhal li Dirāsāt al-Shari„ah al-Islāmiyyah, p.338;

Muammad Muafā, Shalabī, al-Madkhal li Dirāsat al-Fiqh al-

Islāmī,Beriut: Dār al-Jamiat,1985, p.339.


62

1. arat „Alī (r.a.t.a) narrates that once the Holy Prophet

(s.a.w.s) ordered him to distribute the saddles and skins of

animals he had slaughtered. 2

2. „Uqbah ibn „Āmir narrates that the Prophet (s.a.w.s.) gave

him some sheep to distribute among his companions and a

male kid was left after distribution. He informed Holy Prophet

(s.a.w.s) about it, and he said “Sacrifice it on my behalf”.3

3. „Urwah al-Bariqī (r.a.t.a.) narrated that the Holy Prophet

(s.a.w.s.) gave him a dīnār to buy a sheep for him. He bought

two sheep by it and sold one of them for one dīnār on the way.

He said: When I brought a dīnār and a sheep to the Holy

Prophet (s.a.w.s.), he said to me, “May Allah bless the bargain

of your right hand”.4

These traditions prove that a person can delegate his business

to an agent to perform it on his behalf. arat „Alī is reported to

have appointed „Aqīl for management of his lawsuits; and when

„Aqīl became old, he was replaced by another agent Abd Allāh

ibn Ja„far.

Conditions of Agency

I. Conditions relating to the principal (muwakkil/aīl):

The conditions of the Principal are that he should have full

authority of disposing of a matter, which he has entrusted to

another person to perform it on his behalf. He, therefore, should be

competent to undertake task himself for which he has appointed an

agent. Thus, an insane, a minor, and the one placed under

interdiction cannot enter into a contract of agency. They cannot

make other peoples their agents for the performance of work on

their behalf. A discerning minor (abī mumayyaz) may, however,

appoint agent for the performance of acts which are beneficial for

2 Amad ibn anbal,Musnad Amad, Cairo:Dār al-Maārif,vol. 1, pp.79,

143, 154, 112. 3 Bukhari, Sahīh, Kitāb al-Wakālah, No.230; Kitāb al-Daāya, no.5555.

4 Abū Daw‟ūd, Sunan quoted from , Muammad ibn Muammad, Fāsī,

Jam„al-Fawā‟id, Lahore:al-Maktabah al- Islāmiyyah, adīth no.4854.

Delegated Authority

63

the minor, but he is not allowed to appoint agent for transactions

which entail loss for that minor.

II. Conditions relating to the agent (wakīl):

The condition of agent is that he should possess the capacity of

execution that requires sanity and ability of understanding and

discrimination in the agent. Thus, it is not requirement that the

agent must necessarily be of age. A person having deficient

capacity of execution can act as agent for another person. anbalī

and Shāf„ī Jurists, however, postulate complete legal capacity for

an agent. To them the general rule to be followed in this regard is

that one, who does not have authority to dispose of a thing for

him, is ineligible to be agent for disposition of that thing for

others.5 As such, abī mumayyaz is not eligible to act as agent for

others.

III. Conditions relating to Subject-matter (Muwakkal bihī):

The subject matter of agency is the act for the performance of

which the agent is appointed. Agency is permissible in each

known disposition recognised by Sharī„ah. Some important

conditions of the subject matter of agency are as follows:

1. It should be known to the agent to the extent that its

performance is possible for him. Thus, if the agency is for the

purchase of a thing, the genus, kind, quality and other

necessary attributes of the commodity to be bought should be

mentioned. The agency will be invalid where a person

appoints another person as his agent to sell his property

without defining and identifying that property.

2. It should be a lawful and permissible disposition. The agency

is not permissible in acts of disobedience such as murder,

theft, usurpation of property, and slander.

3. The disposition should be something that admits of

representation. Hence, appointment of an agent for the act

such as prayer, fasting, giving evidence, or for taking an oath

is not permissible because these acts are to be performed by

5Ibn Qudāmah al-Mughnī, vol. 5, pp. 79-80.


64

the principal himself. An eyewitness to an incident is required

to give testimony himself. He is not allowed to delegate this

task to another person. Similarly, an oath can be accepted only

from the person concerned, not from his agent.6

Subject-Matter of an Agency

Some of the acts and dispositions for which agency is permissible

are as follows:

♦ Sale and purchase

♦ Letting and hiring

♦ Borrowing and lending

♦ Bailment

♦ Making gifts

♦ Pledge

♦ Assignment of debts

♦ Suretyship and guarantee

♦ Deposits

♦ Litigation

♦ Marriage contracts

♦ Divorce

♦ Relinquishment of rights

♦ Admissions and acknowledgement of rights

Agent‟s duty towards his principal

The duties of an agent towards principal are:

1. To perform the undertaking according to instructions, i.e., to

observe all the conditions and restrictions laid down by the

principal.

2. To exercise due care and skill.

3. To carry out instructions personally, i.e., he is not allowed to

` appoint another person to do an act delegated to him.

4. Not to permit a conflict of interest to arise, i.e., he is not

allowed to purchase for himself property, which he is

engaged to sell. The corollary to this case is that he must not

6 Zuhaylī, al-Fiqh al-Islāmī wa Adillahtu hū, vol. 4, p.

Delegated Authority

65

sell his own property to the principal without fully disclosing

the facts.

5. Not to make secret profit or misuse confidential information.

The effects and rights of the contract of wakālah

Muslim jurists are unanimous on the point that effects of a

contract of agency revert to the principal because the agent only

enforces orders and instructions of his principal. He derives

authority from the principal. Hence, effects should revert to the

principal, regardless of whether the agent attributed transaction to

himself or to his principal. These jurists, however, differ among

themselves regarding the mode of establishment of these effects.

anafī jurists maintain that the ukm or effect is established first

for agent and from him it passes on to the principal. The Shāfi„ī

and anbalī jurists, on the other hand, hold that the effects of a

contract revert directly to the principal.7The author of al-Mughnī

says in this regard:

“If an agent bought some thing for the principal with his

permission, the ownership will stand transferred from

the seller to the principal, without first entering into the

ownership of agent".8

As regards secondary liabilities and rights with respect to a

disposition, the anafī jurists maintain that these are attributable

to the agent. For example, the effect of a contract of sale is the

transfer of ownership in goods from seller to purchaser, whereas

the liabilities and rights of contract are the delivery of the subject

matter; claiming the price, exercise of the right of option of defect

or inspection and returning goods in case of reclaiming. All these

rights and liabilities are to be attributed to the agent not to the

principal. This means that the agent is responsible for receiving

goods from seller, handing over price to him, returning goods in

case of defect to the seller. All these rights belong to the agent not

7 Mansūr ibn Yūnus,Bahūtī, Kashshāf al-Qinā, Cairo:Mabaah Anār al-

Sunnah al- Muammadiyyah,1366/1948 vol.2, p.228. 8Ibn Qudāmah , Al-Mughnī, vol. 5, p.130.


66

to the principal. He alone will be sued for the price and not the

principal.

This principle is applied to all such transactions and

dispositions, which do not require attribution explicitly to the

principal such as sale and purchase. In all such transactions the

rights and liabilities are traceable to the agent. For example, in a

contract of sale, it is agent alone who can demand price from

purchaser. If the principal directs this claim against purchaser, he

(purchaser) cannot be forced to make payment to him.

There are, however, certain other contracts, which must be

attributed explicitly to the principal such as marriage, divorce, and

settlement for murder. The rights in all these cases are traceable to

the principal because the agent in these cases is merely an

emissary carrying the consent of the principal to other party. Thus,

if the agent concludes a marriage contract on behalf of husband, he

(agent) will not be demanded to pay dower money. Similarly, the

agent of wife cannot demand dower money from the husband. The

anbalī jurists do not differentiate between the contract of sale

and contract of marriage for this purpose. To them the effects as

well as rights and liabilities in all the contracts are attributed to the

principal.

Termination of agency

Contract of agency is terminated under the following

circumstances.

1. Mutual agreement of the parties to terminate the agency.

2. Unilateral termination by any of the two parties. Because of

the consensual nature of principal/agent relationship, it is

possible for either party to bring it to an end simply by giving

notice of termination of agreement. All the acts and

disposition of agent before receipts of notice will be

considered valid and effective with respect to principal.

3. Discharge of obligation by the agent. When the agent

performs the act with which he was entrusted through the

contract of agency, the agency comes to an end.

Delegated Authority

67

4. Destruction of the subject matter. When the object of the

agency becomes non-existent, the agency comes to an end. If

the principal, for example, settled a disposition in which he

appointed an agent, or its object perished, the agency will

stand terminated.

5. Death or loss of legal capacity. When party ceases to possess

legal capacity, i.e., he becomes insane or the court prohibits

him from dispositions, the agency will be terminated.

6. Agency cannot be terminated when the right of a third party

is attached to the contract. Thus, if a mortgager (debtor)

appoints the mortgagee (creditor) as his agent for the sale of

mortgaged property in order that the debt is cleared, then such

agency cannot be terminated till the sale is affected.9

2. Acts of the Unauthorized Agent (fuūlī)

The word fuūlī is derived from fuūlī, which means meddling or

the undertaking of affairs by a person that are not of his concern

and fuūlī is one who intervenes in matter that does not concern

him. Hence, fuūlī is a person who concludes a contract on behalf

of another without proper authority. One who sells the goods of

another or purchases something for him when he is neither the

walī (guardian) of such person nor his duly appointed agent, he is

acting as a fuūlī 10

Legal Status of the acts of a fuūlī

There are two opinions of the Muslim jurists regarding the acts of

the fuūlī. The first suggests that such acts are bāil and without

any legal effects. According to the second opinion the acts by

fuūlī are valid subject to ratification by the person on whose

behalf the act has been undertaken.

Opinion No.1: Acts of the fuūlī are bāil having no legal

effects:

The Shāfi„īs and anbalīs are of the opinion that the contracts

concluded on behalf of another are void and have no legal effects.

9 Zaydān, al-Madkhal p.348.

10

assān, al-Madkhal li Dirāsāt al-Islāmī,p.393.


68

The contracts are bāil (void) even if they are ratified by the

person on whose behalf they are concluded, because a contract,

which is bātil, cannot become aī on the basis of such

permission. These jurists have based their opinion on the fact that

the basic condition for undertaking such transaction is the proper

authority and the fuūlī does not possess such authority. He is

neither the owner of the goods nor does he possess the requisite

authority and his acts are, therefore, without legal validity. The

jurists holding this opinion rely on the tradition; “Do not sell that

which is not with you”. This is interpreted here to mean, “Don‟t

sell what you do not own”. The command here was issued by the

Prophet (s.a.w.s) in the case of a Companion who used to conclude

a sale first and then buy the goods and deliver them later on. These

jurists also maintain that a fuūlī does not have the capacity to

deliver at the time of making a contract the thing, which he is

selling. As such it resembles the sale of a bird in the air or fish in

water, which is bāil.11

Opinion No.2: The acts of the fuūlī are Mawqūf (suspended)

till ratification:

The anafīs and Mālikīs are of the opinion that acts of a fuūlī are

valid (aī) but can be assigned legal effects only when ratified

by proper authority. If such ratification is awarded, such acts

become valid taking their legal effects. If the ratification is refused

the acts are void ab initio.12

These jurists rely for their opinion on the tradition that the

Holy Property (s.a.w.s) ratified the purchase and subsequent sale

of a goat on his behalf by one of the Companions. As regards the

tradition prohibiting the sale of that which one does not possess, it

is maintained by these jurists that it applies to sale on one„s own

behalf and not on behalf of another. It goes without saying that

fuūlī acts on behalf of other people.

We may now distinguish between the legal effects assigned to

a suspended contracts by a fuūlī in cases ratification is assigned

11

Ibn Qudāmah, al-Mughnī, vol. 4, p.155. 12

assān, al-Madkhal li Dirāsāt al-Islāmī,p.396.

Delegated Authority

69

and in cases where ratification is refused.. The anafīs consider

sale and purchase separately for this purpose and we follow their

method in this discussion.

a) Sale by a fuūlī: As already mentioned that anafīs and Mālikīs

consider the sale of a fuūlī as valid but subject to ratification by

the owner of the goods.

The suspension of the contracts concluded by a fuūlī implies

that such contracts may be revoked by the purchaser or by the

fuūlī before ratification. The result of this would be that even if

the original owner or the person on whose behalf the fuūlī acted

were to ratify the contract, it could still to be revoked. The reason

is that in such a case the interest of the fuūlī would have priority.

This is because the fuūlī becomes an agent hence all the rights of

the contract revert to him. It is he who has to deliver the goods or

price and exercise various options. All this may be injurious to

him.13

The Mālikī jurists do not allow a fuūlī or a purchaser the

right of revocation. This right belongs only to the owner who may

revoke or ratify the contract, as he likes. If a fuūlī becomes the

owner of the goods (through inheritance or gift etc.) that he sold

without authority, such sale becomes void according to the

anafīs and he would have to transact a new sale. Ratification by

the fuūlī in such a case is not possible. The rule according to the

anafīs is that the cause of ownership must precede the sale and in

this case the cause has come into existence after the sale.

The Mālikīs allow the fuūlī in such a case to revoke the sale

if he inherits the property, as according to them, he inherits the

right of ratification with it. If he becomes the owner due to other

causes like purchase and charity, he has no right to revoke the

contract and the sale will be implemented.14

b) Purchase by a fuūlī: The Mālikī jurists do not distinguish

between sale and purchase by a fuūlī. According to them both are

13

Kāsānī,Badā‟i„ al-anā‟i„, vol. 2, p.233. 14

Kāsānī, Kharashī, vol. 5, p.18; al-Shar al-Kabīr, vol. 3, p.12. Cf.

assān, al-Madkhal li Dirāsāt al-Islāmī,p 400.


70

dependent on ratification by the person on whose behalf such a

transaction was made. The same rule applies to a situation where a

fuūlī attributes the contracts to himself or to the person on whose

behalf he is acting. Hence, purchase by a fuūlī on behalf of

another is valid but suspended till ratification. The seller does not

have the right to revoke such a contract. If ratification is accorded,

the fuūlī is considered as an agent but if ratification is denied, the

fuūlī becomes the buyer.15

The anafī jurists distinguish between purchase and sale and

also whether the fuūlī is attributing the sale to himself or to the

person on whose behalf he is acting. Thus, if a fuūlī purchases on

behalf of another but attributes the contract to himself then such a

contract will be valid against him. It will not require buyer‟s

ratification and ownership is transferred to him. Consequently he

will be obliged to pay the price. When fuūlī attributes the

purchase to the person on whose behalf he is acting the sale is

valid (aī) but is subject to ratification by such person.16

A necessary condition in cases of ratification is that the

person on whose behalf he is acting must have legal capacity

failing which it should be ratified by the walī.

Conditions of Ratification: There are certain conditions that have

to be fully complied with before the principal can effectively adopt

the contract. These are:

a) The subject matter of the contract must be in existence:

Ratification is futile if the subject matter was destroyed before it

was accorded. If the subject matter is destroyed in the hands of the

fuūlī he is liable for its destruction. If it is destroyed at the hands

of the buyer the real owner is at liberty either to claim

compensation from fuūlī or from the buyer.

b. All three parties must be alive at the time of ratification:

If ratification is accorded after the death of one of the parties, it

shall have no legal effects.

15

Kāsānī, Kharashī, vol. 5, p.18 Cf. assān, al-Madkhal. p.402. 16

Zayn al-bidīn, Ibn Nujaym, al-Bahr al-Rā‟iq,Cairo:1893,vol. 6,

p.149. Cf. assān, al-Madkhal. p.403.

Delegated Authority

71

c. Concerned parties must possess legal capacity at the time

of the contract: If a fuūlī acts on behalf of a minor who accords

ratification after attaining puberty, such ratification is without

effect.17

Mode of Ratification: Ratification is either expressed or implied.

Expressed ratification is by words or by way of delivery (of goods

or price). Implied ratification is by way of qarā‟in (context) like

the owner of goods gifting away the price of the goods sold by the

fuūlī. The anafīs maintain that mere silence on the part of the

owner when knowledge of the sale has reached him, does not

amount to ratification on his part.

Effects of Ratification:If ratification is accorded in conformity

with the conditions listed above, the fuūlī becomes the agent

(wakīl) of owner. Such agency has retrospective effects from time

of the act of the fuūlī.Thus, the ukm of the contract will pass to

the owner while the uqūq shall remain with the fuūlī who is now

the agent.

Denial of Ratification: If in case ratification is denied, the acts of

the fuūlī become null and void having no existence. If ratification

is denied when delivery of the goods sold has already been made

to the buyer, the owner has the right to demand the return of such

goods. If such property is destroyed in the hands of the fuūlī he

alone is responsible, but after delivery both the fuūlī and the

buyer are liable.

In case there is silence on part of the owner the anafīs keep

the contract suspended without any limit of time. Mālikī jurists on

the other hand limit it to a period of one year from the time when

knowledge of the sale reached the owner after which performance

of the contract becomes necessary. It is important to note here that

through this opinion the Mālikīs have introduced the concept of

limitation into Islamic Law.18

17

Imrān Nyāzee, Outlines of Islamic Jurisprudence, Islamabad: ALSI p.

140. 18

assān, al-Madkhal, pp. 405,406.


72

3. Guardianship (wilāyah) :

Definition

It is an authority granted by the Sharī„ah to a person over the

person and property of another person by virtue of which his

dispositions in respect of such persons are assigned legal effects.19

The legitimacy of guardianship has been established by the Qur‟ān

and the Sunnah. Verses 282 of Sūrat al-Baqarah provides that: "If

the party liable is mentally deficient or unable himself to dictate,

let his guardian dictate faithfully”.20

This shows that a minor has

to be subjected to guardianship.

Kinds of Guardianship

There are two kinds of guardianship;

1. guardianship over the person,and

2. guardianship over the property.

The first kind implies the protection of the minor, the

undertaking of his education and general bringing up. It also

includes his marriage. The second kind implies safeguarding of the

property of the minor, the lunatic and the insane.

Guardians and grades of guardianship

The following persons are entitled to be guardians of the property

in Islamic Law;

♦ the father,

♦ the executor appointed by the father‟s will,

♦ the father‟s father,

♦ the executor appointed by the will of father‟s father,

♦ the judge, and

♦ the executor appointed by the judge.

In default of the first four categories, the court may appoint a

guardian from the following persons in the order of priority herein;

● full brother,

● consanguine brothers,

19

Zuhaylī, al-Fiqh al-Islāmī wa Adillatuhū, vol. 4, p.139. 20

Qur‟ān 2: 282.

Delegated Authority

73

● full brother's son,

● consanguine brother's son,

● full paternal uncle,

● consanguine paternal uncle,

● full paternal uncle's son, and

● consanguine paternal uncle's son.

The jurists are unanimous on the point that guardianship of a

minor is established for the father. But they differ among

themselves regarding the one who follows the father in

guardianships and comes next to him. According to anafī jurists

executor appointed by father follows him. And if the father has not

appointed executor in his life, it will shift to grandfather and from

him to the executor appointed by grandfather. Thus, the executor

appointed by the father will be given priority over grandfather.21

The Mālikī and anbalī jurists acknowledge guardianship of

minor for father and his executor first and then for judge or his

nominee.

The grandfather in their view is not entitled to guardianship

of property because he is not like the father. He is more distant

than him in degree and has less concern for minor‟s interest.22

The Shāfi„ī jurists give grandfather precedence over the

executor. He is nearer to minor than executor appointed by father.

In the absence of the father and grandfather, guardianship belongs

to an executor to be appointed by any of them who died later. And

after him it will be transferred to the judge or his nominee.23

Conditions of guardian: The jurists have laid down following

three conditions for a person who assumes the position of

guardian;

● He should be adult and sane, ● He must follow the sane religion as followed by his

ward, and

21

Zuhaylī, al-Fiqh al-Islāmī, vol.4, p.142. 22

Ibid. 23

Zaydān, al-Madkhal, p.336.


74

● He should be capable of performing dispositions

required by the guardianship.24

Rights and duties of guardian: It is a basic requirement of

guardianship that all the actions and dispositions of the guardian

should be directed towards realisation of the interest of the ward.

Thus, he is allowed to make any disposition, which may benefit

him and augment his wealth. The Qur‟ān says:

“Come not nigh to the orphan‟s property except to

improve it until he attains the age.”25

This verse makes it imperative for the guardian of the orphan

not to touch his property except for the purpose of improving it

and the guardian should not take a personal advantage in the

bargain made for the ward.

● It is not permissible for guardian to enter into any contract for

ward, which may cause damage to him. Thus, he is not

allowed to use his property for granting loans and giving gifts

to people.

● A legal guardian of the property of a minor has power to sell

or pledge the goods and chattels of the minor for the minor‟s

imperative necessities suited to his life such as food, clothing,

and medication.

● A legal guardian may enter into a transaction of exchange in

respect of minor‟s property, if it has the effect of conserving

it.

● He can also sell it if the property has been usurped, and the

guardian has reason to fear that there is no chance of fair

restitution.

● A guardian of the property of a minor appointed by the court

is bound to deal with moveable property belonging to the

minor as carefully as a man of ordinary prudence would deal

in his own case.

24

Ibid, pp. 337-338. 25

Qur‟ān,17:34.

Delegated Authority

75

● Where a minor upon attaining his majority claims to be fit to

manage his financial affairs and the executor disputes such

fitness, the latter cannot be compelled to deliver the minor‟s

property until the minor has been declared by the judge to be

capable of such management.

● If the executor refuses to deliver the property to the minor

after the latter has been declared competent by the judge to

administer his own property, and after the minor has duly

called upon executor to make such delivery, the latter will be

held liable for any loss associated to the property while it is in

his hand.

Conclusion

◘ Delegated authority refers to the authority of the agent and

the guardian.

◘ A contract of agency has three elements namely; principal,

agent and Subject matter.

◘ The subject matter of agency is the act for the performance of

which agent is appointed.

◘ The subject-matter of agency should fulfil the following

conditions:

♦ It should be known to the agent;

♦ It should be lawful; and

♦ It should admit of representation.

◘ The agent is required to perform the undertaking according to

the instructions of the principal and exercise due care and

skill.

◘ Agency comes to an end by a number of circumstances such

as mutual agreement, unilateral termination, discharge of

obligation, destruction of the subject matter and the death or

loss of legal capacity.

◘ The dispositions of the fuūlī (self imposed agent) are lawful

subject to ratification by the principal in the opinion of

anafī and Mālikī jurists.


76

◘ Guardianship is an authority granted by the Sharī„ah to a

person over the person and property of another person by

virtue of which his dispositions in respect of such persons are

assigned legal effect.

◘ Islamic Law acknowledges guardianship for the father, the

executor appointed by him, the father's father, the executor

appointed by him and judge.

◘ It is a basic requirement of guardianship that all actions and

dispositions of the guardian should be directed towards

realisation of the interest of the ward.

Chapter -7

ai, Fāsid and Bāil Contracts

The Muslim jurists classify contracts into aī (valid), bāil

(void) and fāsid (voidable or irregular) contracts with regard to

their legal validity. A aī contract is that whose al (nature and

essence) and wasf (accessory circumstances or attributes) are in

accordance with law. Thus, a contract will be deemed valid when:

● its elements are complete;

● conditions relating to elements have been met; and

● it is free from external prohibited attributes.

Thus, if any of the elements is missing or a condition is not

met or the Lawgiver has prohibited it due to some attribute

attached to it, the contract is bāil or fāsid.

A contract will, therefore, be bāil or fāsid if the acceptance is

missing or it does not correspond with the offer or one of the

parties does not possess legal capacity or the subject matter is non-

existent or it cannot be delivered or the contract contains an

element of ribā (interest) or gharar (indeterminacy). Thus, the

contract is bāil as an element is missing or a condition has not

been fulfilled or an attribute opposes the command of the

Lawgiver and each of these results in the same effect according to

the majority, i.e., the contract is bāil.1

1 assān, al-Madkhal li Dirāsāt al-Fiqh al-Islāmī, pp.439-430.


78

The anafīs divided contracts into three kinds: aī, fāsid

and bāil.

Valid or aī contract

The aī contract is said to be concluded when all its element are

found, the conditions of each element have been met and it also

possesses such attributes of extrinsic nature which the law takes

notice of. There is no disagreement among the anafīs and other

jurists regarding this meaning of the aī contract.2

It has been mentioned earlier that according to majority there

are three elements of contract namely, the Sīghah (form) offer and

acceptance; the subject-matter and contracting parties. The

Lawgiver has assigned further conditions to these elements. The

sīghah requires conformity between offer and acceptance, their

issuance in the same session, existence of the ījāb till the issuance

of qabūl. It also requires that a party to the contract must be sane,

pubert. And that the subject -matter must be legal, in existence,

deliverable and known.

If the elements are present and the conditions are met the

contract comes into existence in the eyes of the Lawgiver.

However, it cannot be called aī or which is legally enforceable

(mun„aqid) unless it is free from external prohibited attributes like

ribā,and gharar. If a contract contains any such attributes the

anafīs consider such a contract as fāsid. The anafīs define the

aī contract as that which is legal in its al as well as wasf. The

al here stands for the elements and conditions and the wasf for the

external attributes, or accessory circumstances or non-essential

quality of contract. According to anafī jurists a contract, which

contains the condition of ribā, is not a void contract because ribā

occurs either in a loan contract or in a sale transaction, which are

basically permissible. It is the vitiating condition of ribā, which

invalidates such a contract. Thus, it is valid by virtue of the

validity of loan or sale, but not by virtue of invalidating accessory

attribute of ribā. Such a contract, according to anafī jurists will

2 Madkūr, , al-Madkhal li al-Fiqh al-Isālmī,Cairo: Dār al-Nahdah al-

Arabiyyah,1380/1960, p.601.


79

not be declared void; instead it is an irregular contract that can be

made lawful by removing the invalidating condition of ribā.3

Similarly, a contract that contains an element of uncertainty,

indeterminacy or want of knowledge is not a void contract. The

example of indeterminacy is where a seller tells a buyer, “I sell

you one sheep out of these three sheep”, or where a sale takes

place without fixing the price of object. In both the cases the sale

is fāsid, i.e., irregular according to anafī jurists which can be

regularised by removing the cause of irregularity, i.e., by

identifying the sheep and fixing the price.4

The ukm of aī contract

A aī contract is assigned all its effects that Lawgiver has

determined for it. These effects come into being on conclusion of

the contract if it is enforced (nāfidh) and after the removal of the

cause of suspension if it is mawqūf or suspended contract.5

Kinds of Valid Contract

A aī contract, as we have said, is one, which is legal both as

regards its al and the waf. Such a contract must give rise to the

effects assigned to it by the Lawgiver. Some jurists maintain,

however, that there are aī contract the effects of which can be

delayed till the happening of a future event. Such contracts are

called mawqūf contracts, i.e., held up in suspense. This is the

opinion of the anafīs, Mālikīs, and some anbalīs. The Shāfi„īs

and some anbalīs do not admit delay in the effects of the

contracts. According to them a aī contract must give rise to its

effects immediately, i.e., it must be nāfidh (operative). Mawqūf or

suspended contracts thus have no existence according to these

jurists. Thus, a mawqūf contract is a kind of valid contract. It is a

contract, which is not immediately enforceable. Dr. Sanūrī

regards it a voidable contract.6

● The nāfidh (operative or immediate contract):

3 See Sanhūrī, Maādir al-aqq, vol. 2, pp. 147, 151.

4.assān, al-Madkhal li Dirāsāt al-Fiqh al-Islāmī p. 432.

5 Ibid, p. 431.

6 Sanhūrī, Maādir al-aqq, p.276.


80

The nāfidh contract is that in which:

◘ the elements are found;

◘ the conditions are met;

◘ the external attributes are legal; and

◘ the contract is not dependent upon ratification.

● The Mawqūf contract is that in which:

◘ the elements are found;

◘ conditions are met;

◘ waf is legal; but

◘ the effects are dependent upon ratification.

This contract, as we have noted, is not acceptable to the

Shāfi'īs and some anbalīs.

Causes of suspension

The cause due to which the effects of a aī contract are

suspended may be summarized as under:

(a) Defective capacity: Contracts of minor possessed with

discretion (abī mumayyaz) or the one under interdiction (ajr)

due to safah (weakness of intellect) or „atah (lunacy or partial

insanity)

b) Lack of proper authority:Contracts in which a person

acts on behalf of another without proper authority are suspended.

These are the contracts of a fuūlī, i.e., one who is neither

guardian nor agent nor the owner or contracts of an agent who

transgresses the limits prescribed by the principal.

c) Right of third party:If the owner sells the mortgaged

property, it will be subject to the ratification of the mortgagee.

The cases of mara al mawt (death illness) ghab usurpation

are also treated the same way. We may analyse the above causes

in little more detail.

(a) Contracts suspended due to defective capacity: The abī

mumayyaz can be permitted to undertake certain kinds of


81

transactions. Those, which are purely harmful, cannot be

permitted. Those, which result in benefit only, are allowed.

However, a transaction by such a minor in which there is a

likelihood of both benefit and harm are valid subject to

ratification. The ratification may be accorded by the guardian after

the transaction and before the minor attains puberty or by the

minor himself after majority in case the guardian did not reject the

contract before attaining majority.

The ukm of such a contract is that before ratification there

are no effects and ownership is not transferred in goods or price.

Once ratification is granted it acts retrospectively and the effects

come into operation from the date of the contract. In case

ratification is refused the contract becomes void.

(b) Suspension due to lack of proper authority: The rules

relating to the fuūlī have already been studied and are applicable

here. The contracts of the fuūlī are aī but mawqūf. If such

contracts are ratified by one who possesses the authority then the

effects come into operation. Refusal to ratify shall make the

contracts of the fuūlī void. In case the fuūlī has delivered the

property, the akām of ghāb, (usurption) shall operate against

him, i.e., he shall return the property or become liable for

compensation. Ratification of course shall operate from the time of

the contract.

c) Suspension due to right of third parties: There are cases

where a person has the capacity and authority to act, i.e., he is the

owner of the subject matter, but the rights of third parties are

linked to it. The contract, thus, is suspended and needs to be

ratified by such third party.7

Thus, if A, a mortgager decides to sell his property

mortgaged with B from whom he has borrowed money, the right

of B is likely to be endangered. B can claim that his loan be repaid

first. This contract shall, therefore be suspended. In case B decided

to forgo his claim upon the property he may ratify the contract,

which shall be declared. In case he refuses to do so the contract

7 See Sanhūrī, Maādir al-aqq, pp.128-130; assān, al-Madkhal, pp.

449,450; Zuhaylī, al-Fiqh al-Islāmī wa adillatuhū, vol. 4, pp. 229-230.


82

shall become bāil. It may be mentioned here that before

ratification by B, the buyer has a right to revoke the contract but A

the mortgager/seller has no right to revoke the contact of sale

made by him.

In the case of mara al mawt (death illness) we know that

any transaction, which is not at market value, will take the ukm of

bequest and shall be valid up to one-third of the property. Beyond

one-third of the property ratification shall be required from

persons whose rights are affected namely the creditors and heirs.

The Lāzim (binding) and Jā’iz (Non-binding) Contract

A contract, which is aī and nāfidh is divisible into lāzim

(binding) and ghayr lāzim also known as Jā‟iz. (non-binding or

terminable).

The Lāzim Contract

The lāzim contract is that in which none of the parties has a right

to revoke the contract without the consent of the other, unless

options have been granted to a party by virtue of which the right to

revoke can be exercised.

The Jā’iz or ghayr lāzim Contract

It is that contract in which the right to revoke can be exercised by

either party without the consent of the other party. The reason for

a contract being ghayr lāzim or revocable are two:

(a) The nature of the contract, which allows independence to

both parties as in wakālah (agency), sharikah (partnership),

wadī„ah (deposit), kafālah (suretyship), and āriyah

(commodate loans). These contracts are jā‟iz (terminable) or

ghayr lāzim (non-binding) with respect to either party or one

of them.

(b) An option is stipulated in the contract that prevents it from

becoming lāzim. Thus, the party possessing the option can

revoke the contract without the consent of the other party

within the period of the option8 (options have been discussed

in detail under the title “Islamic Law of Options”).

8 See assān, al-Madkhal, pp. 452,453.


83

Fāsid (Irregular Contract)

Definition:

The fāsid (irregular) contract is that whose elements are present

(i.e., offer and acceptance) and all the essential conditions are

complete, but an external attribute attached to the contract has

been prohibited by the Lawgiver. The contract is legal as regards

its al but it is not proper as the waf is prohibited.9

Causes of Irregularity in Fāsid contracts:

Some important causes, which render a contract fāsid are as

follows:

◘ defective consent,i.e., a consent obtained through coercion;

◘ want of knowledge leading to dispute (gharar and jahl);

◘ invalid condition or an ancillary condition not being collateral

to the contract and not admitted by commercial usage and

being one, which gives advantage to one of the contracting

parties at the cost of the other; and

◘ ribā (usury) or undue enrichment.10

Discussion of the cause of irregularity in detail:

Defective consent due to coercion:

The Majority of the Muslim jurists hold the view that a contract

made under coercion is a void contract. The anafī jurists, on the

other hand, view it as an irregular contract. To them such contract

must be dissolved. However, if the coerced party after the removal

of coercion ratifies the contract, it will become a valid contract.

Thus, it can be regularised by ratification. According to Imām

Zufar, a anafī jurist, it is a valid contract, however, it is

suspended one, which is subject to ratification.11

To him coercion

is an impediment to enforcement of contract not to its validity. The

9 Zaydān, al-Madkhal li dirāsāt al-Sharī„ah al-Islāmiyyah, p. 366.

10 Sanhūrī, Maādir al-aqq vol. 2, p. 127.

11 Zuhaylī, al-Fiqh al-Islāmī wa adillatuhū, vol. 4, p. 380.


84

ratification of irregular contract is possible before possession as

well as after it.

Want of knowledge:

Want of knowledge that invalidates contracts is the one that is

likely to lead to dispute among the parties. For example, a person

sold an unidentified sheep out of herd of sheep. This will certainly

give rise to a dispute between the contracting parties because the

buyer would naturally ask for the best sheep in the flock, whereas

the seller would like to give the worst. It is, however, permissible

to sell one item out of few identified items with the option of

determination in favour of the purchaser.

Want of knowledge affecting the validity of contract is of the

following types:

◘ want of knowledge relating to the subject-matter such as

indeterminate object in a sale contract, or unidentified

property in leasing contract;

◘ want of knowledge relating to consideration. It is where price

of the sold article has not been fixed, and is left unspecified;

◘ want of knowledge relating to the time of performance. For

example, A rented his house to B without fixing the hiring

period, or A sold an object to B on credit without specifying

the time of payment of price. Indeterminacy of period in a

partnership contract does not invalidate it because partnership

is a non-binding contract in anafī jurisprudence. It can be

terminated at any time.

◘ Want of knowledge relating to means of suretyship. Thus, if

seller asked the purchaser to provide a guarantor or pledge

some property as security for the deferred price of sale, it is

necessary that the guarantor or pledged property be identified

and made known to the creditor, otherwise the contract will be

irregular on account of want of knowledge relating to means

of suretyship.12

12

Ibid, pp. 379-380.


85

Gharar or uncertainty relating to necessary characteristics of a

commodity also renders a contract irregular in the following

manner:

◘ In sale contract: If a person sold a cow believing that it gives a

particular quantity of milk, it will be an irregular sale because

of uncertainty of milk yield or if he sold a cow believing that it

bears in its womb a calf, again the sale is irregular on account

of uncertainty.

◘ In partnership contracts: If the contracting parties agreed on

particular amount of profit for one party, the contract is

irregular because it is possible that partnership earns only that

much profit which has been stipulated for one party or it does

not earn anything. A contract of partnership with such a

stipulation is regarded irregular.13

III- Invalid condition or an ancillary condition not being

collateral to the contract:

Irregularity can also arise from the stipulation of an irregular

condition. In anafī jurisprudence a condition is deemed to

be irregular in the following cases:14

◘ When it is repugnant to the requisite of the contract such

as to stipulate that the buyer will not sell the object he

has purchased; or he will not rent it out, or to stipulate in

a marriage contract that husband will not establish

matrimonial relationship with his wife.

◘ When it is expressly prohibited by the Lawgiver, like selling

an article on the condition that the purchaser will sell

something else to the buyer or lend him some money or make

him a gift. Such conditions are prohibited because Islamic

Law expressly prohibits combination of two mutually

inconsistent contracts and a loan and a sale.

13

Muafā Amad Zarqā, al-Madkhal al-Fiqhī, al-„Āmm,

Demascus:Maba„ah Tarbīn,1387/1968, vol. 2, pp.699,700. 14

Zuhaylī, al-Fiqh al-Islāmī wa adillatuhū,, vol. 4, pp. 381,382.


86

◘ When it is against the commercial usage such as condition by

the purchaser of corn that the seller will grind it, or a

condition by a buyer of a piece of cloth that the seller will

sew it.

◘ When it is advantageous to one party at the cost of other party.

For example, where the seller reserves for himself an

advantage from the sale such as the condition that he shall

reside in the house sold for a period of two months after sale,

or he will lend him some money.

Examples of such irregular conditions in a marriage contract is a

stipulations by a wife that husband will not marry another woman,

or he will never divorce her, or he will divorce the existing wife.

All such conditions render a contract irregular. It is pertinent to

note here that these irregular conditions affect only the

commutative contracts such as contract of sale, hiring, and

cultivation, and do not affect gratuitous contracts such as gift,

donation, waqf or the contracts of suretyship such as kafālah,

mortgage, and awālah (assignment of debt), or the contract of

marriage. Irregular conditions in the aforesaid contracts do not

invalidate them. Only the invalid condition is abrogated. The other

part of the contract remains valid and effective. (Extrinsic

conditions have been dealt with in detail in chapter entitled

“Extrinsic conditions and their effect on contract”.)

IV. Ribā:

Ribā occurs either in a loan transaction or in a barter contract.

Ribā in a loan transaction means to stipulate excess over and

above the principal sum to be paid by the debtor. It also takes

place in a barter transaction. It is where a person exchanges two

commodities of the same kind with excess such as two parties

exchange 5 k.g. of wheat for 7 k.g. of wheat. According to anafī

jurists a contract containing an element of ribā is an irregular

contract. It can be made valid by removing the cause of

irregularity. Thus, if the party, which has stipulated excess in its

favour, annuls the condition of excess in the session of contract,

the contract will become a valid contract. (The issue of ribā has

been discussed in detail in a separate chapter).


87

The ukm of an irregular contract

Before Possession:

Legal effects are only assigned to the aī contract and not to an

irregular contract. This rule has been applied by the anafīs to an

irregular contract in which possession of the property has not been

delivered. Such a contract must be revoked without the consent of

either party. Thus, ownership in the property is not transferred and

no rights and obligations have arisen. The seller cannot demand

the price nor can the buyer force the seller to deliver the goods.

The parties to such a contract have no option to permit an irregular

contract or to relinquish the right of revocation. Each one of the

parties can revoke the contract without the consent of the other.

The only way in which an irregular contract can become a

valid or aī contract is by the removal of the cause of

irregularity, i.e, the removal of the prohibited waf. Thus, if a

contract declared irregular because of ribā, which is stipulated in

the contract such irregularity can be removed if the party in whose

favour ribā has been stipulated, decides to forgo it.

After Possession:

If the parties to the contract decide to implement it, e.g., the

delivery of the goods by the seller to the buyer and delivery of the

price to him by the buyer, then this contract, is strengthened

somewhat as compared to the position before delivery. The result

of this is that the right to revocation, which rested with, either

party without the consent of the other now will rest with the party

who had the benefit of the condition. This is so in cases like sale

for an undetermined period or with the condition of extending

credit to the seller. As regards cases like ribā or where the price is

in form of wine, the right of revocation still rests with both parties.

When the buyer takes possession of property with the consent

of the seller, then he can use it as the ownership passes to him by

possession. In such a case, his obligation is to pay the value or

market price of the goods purchased to the seller and not the price

that was fixed in the agreement. Article 371 of the Majallah points

to this fact. It reads: “In bay„ fāsid, where the buyer has received a


88

thing sold with the permission of the seller, he becomes the owner

".15

However, the parties can still revoke it if the buyer has not

disposed of it. In such a case, if the seller wishes to resume the

object, he must first pay the purchase-money to the buyer.16

Until

such restitution the goods are held by the purchaser as a pledge.17

But if the buyer disposed of the property by resale or donation or

added or subtracted from it, or changed it in such a way that it can

no longer be regarded as the same object, then there is no right for

either party to annul the contract.18

Thus, where the buyer has sold

the property, this second sale is valid and legally enforceable, it

cannot be obstructed in Islamic Law by the fact that first sale was

irregular.

Difference Between Valid and Irregular Contracts

Some differences between valid contract and irregular contracts

are as follows:

◘ Ownership in a valid contract is transferred from the seller to

the purchaser by mere offer and acceptance, whereas in

irregular contract it is transferred to him by possession taken

with the consent of the seller.

◘ In an irregular sale the value of the thing, i.e., its market

price, is admissible whereas in a valid contract agreed price is

paid. In an irregular hiring contract the lesser is entitled to

equitable and proper rent (according to market rate) and not

to the specified rent. Similarly, in an irregular partnership,

each partner gets the profit in proportion to his capital and not

according to the agreement.

Revocation of Irregular Contract

Islamic Law does not approve of an irregular contract. Therefore,

its revocation is necessary regardless of whether delivery has been

made or not. However, it cannot be revoked if the subject-matter

15

Majallat al-Akām al-„Adliyyah, Art. 371. 16

Ibid, Art. 373. 17

Marghīnānī, edāyah, tr. Charls Hamilton, Sweden, 1891, p. 276. 18

Majallah, Article 372.


89

has changed shape or is destroyed or has been disposed of by the

buyer through sale or donation, and the second purchaser has sold

it further. In all these cases the contract cannot be revoked.19

Some forms of Irregular Contract

Some important forms of irregular transactions according to

anafī jurists are as follows:

1. Bay‘ al-Majhūl: It refers to a sale in which the object of sale

or its price or the time of its payment remains unknown and

unspecified.

2. Contingent contract: It is a contract that is contingent upon

an uncertain event. For example says to B, “I sell you my house if

X sold me his house”.

3. Sale contract effective from future date: It is a contract that

comes into effect from future date:

4. Bay al ghā’ib : It is a sale of what is not visible at the

meeting of the parties. The seller in bay al-ghā‟ib has title over the

subject matter but it is not available at the parties‟ meeting

because it is elsewhere.

5. Sale contract with unlawful consideration: It refers to a

sale whose consideration or price is something prohibited by

Islamic law such as wine or pork.

6 . Bay‘al-‘Īnah: It is to sell a property on credit for a certain

price and then to buy it back at a price less than the sale price on

prompt payment, both transactions taking place simultaneously in

the same session of the contract. According to Imām Abū Yūsuf, a

anafī jurist, such sale is valid.

7. Two sales in one: Where a single contract relates to two

sales. Such as to sell one commodity for two prices, one being

cash and the other credit price, making contract binding against

one of the two prices.20

19

Zarqā, al-Madkhal al-Fiqhī al-„Āmm, vol. 2, p. 703. 20

See, Zuhaylī, al-Fiqh al-Islāmī wa adillatuhū, vol.4, pp.454-472.


90

The bāil Contract

A bāil contract is defined by the anafīs as that which is illegal in

its al as well as its waf.21

The word al refers to elements and

essential conditions pertaining thereto while the waf is the

external attribute. The anafī say that there is only one element,

i.e., īghah (form). The īghah has conditions that relate to ījāb

and qabūl like conformity between them, their issuance in the

same majlis, existence of the ījāb till the issuance of the qabūl or

those, which relate to the capacity of the parties or the subject-

matter. If any of these conditions is not fulfilled the contract

becomes bāil. All this relates to the al. As regards the waf they

maintain that it is an external attribute introduced into the contract

by the parties, which is against Islamic Law.

The bāil contract does not give rise to any effect. Thus, no

ownership is transferred nor is any kind of obligation found. The

reason is that the contract in itself is prohibited and what is

prohibited cannot give rise to rights. Performance of the contract

is, therefore, not possible and none of the parties can enforce it.22

If delivery of the goods has already been made then the

property must be returned to the other party regardless of whether

such illegality was known to the parties. If the buyer sells the

goods to a third party after taking delivery, the original seller

cannot be prevented from claiming the goods. The reason is that

ownership cannot be transferred through a contract that is bāil.

This ukm is clearly different from that of a fāsid contract.

Ratification also has no role to play in a bāil contract. In case

a bāil contract is concluded by a person suffering from death

illness then the creditors or heirs have a right to claim restitution

of property.

Causes of Invalidity

The causes which render a contract invalid, may be divided into

two kinds:

21

Zaydān, al-Madkhal, p. 366. 22

Zuhaylī, al-Fiqh al-Islāmī wa adillatuhū, vol. 4, p. 237.


91

(a) Intrinsic causes: These are the causes, which relate to al or

elements of contract such as the unlawfulness of subject-matter,

non-existence of subject-matter, the absence of contractual

capacity.

(b) Extrinsic causes: Extrinsic causes are the causes, that relate

to waf, i.e., external attribute such as the contract contains

element of ribā or gharar. It is pertinent to note that ribā and

gharar are causes of irregularity of contract in anafī Law while

in other schools they are causes of invalidity of contract. We will

discuss here causes, which relate to first kind. (ribā and gharar

have been discussed in the following chapters).

1. Unlawful Object:

It is a condition for the validity of a contract that the object of the

contract be legal and lawful. It means that the object should be a

thing in which transactions are permissible in the Sharī„ah. It

should be ritually and legally clean. Any substance which is

religiously and legally unclean, and the disposal of which have

been restricted, cannot be a valid object of sale; e.g., wine, pig,

intoxicants, blood and carcasses. The anafī jurists do not

consider bones of dead animals, hair, skin. filth, so they allow

their sale.23

The rule to them is that anything not prone to death

and decay is pure.

The legality of the object further requires that the purpose of

the contract and its underlying cause should be recognized by the

Sharī„ah. It should not be contrary to the objectives of the

Sharī„ah. Therefore, a contract to run a brothel or a gambling

house is void, because in the former case the contract is contrary

to the preservation of the family unit, progeny and offspring which

is an objective of the Sharī‟ah and, in the letter case, the object is

opposed to the preservation of property and amounts to devouring

another person‟s properties wrongfully.24

23

See Kāsānī , Badā‟i„ al-anā‟i„, vol. 5, p.140; Mughnī al-Mutāj, vol.2,

p.11; Ibn Qudāmah , al-Mughnī, vol. 4, p.260. 24

See Zuhaylī, al-Fiqh al-Islāmī, vol. 4, pp.185-186.


92

The legality of the object also means that the act or service

which is the subject-matter of contract must not be harmful for the

contracting parties or the general public, e.g., hoarding

commodities, growing of opium, a contract to kill a person, to

usurp the property, or deprive a person of his property without

compensation. 25

Furthermore, if the object does not fulfill the intended

objectives, again it will be held to be a void contract. Thus

vegetables cannot be made the object of a pledge, because the

purpose of a pledge is to retain pledged property and to sell it for

satisfaction of the claim whereas vegetables are easily perishable.

They, therefore, do not serve the intended purpose. Likewise

public roads and public parks cannot be made the objects of sale,

because they are meant for the benefit of the public not for the

benefit of an individual or a specific group of people.26

2. Absence of Contractual Capacity:

As mentioned earlier, it is a requirement for a valid contract that

the contracting parties be competent to conclude a contract. This

means that they should be major and sane, and not prevented from

transactions. Thus a contract will be deemed void if it is entered

into:

(i) by an insane person.

(ii) by a minor not possessed with discretion. (abī ghayr

mumayyaz).

(i) by a minor possessed with discretion if he made a transaction

which is harmful to him or a transaction which may equally

result in benefit and loss without permission of his guardian.

(ii) by a ma„tūh (partially insane) if it is a harmful contract for

him.

(iii) by a safīh (weak of intellect) after he has been put under

interdiction by the court.

25

Mushtaq Amad, Business Ethics in Islām, Islamabad, International

Institute of Islamic Thought and International Institute of Islamic

Economics,1995, p.95. 26

Zaydān, al-Madkhal li Dirāsāt al-Sharīàh al-Islāmiyyah, p.308.


93

(iv) by a muflis (bankrupt) whose debt exceed his earnings and the

court, on the demand of his creditors has passed prohibitory

orders. The disposal of property by such a person would be

invalid and will produce no effects after such interdiction by

the court.

(v) by a fuūlī (unauthorized agent) whose action has not been

subsequently ratified by the principal.

3. Non-existence of the subject- matter :

Non-existence of the subject-matter is generally considered a

cause of invalidity of contract. This principle applies to both

commutative and gratuitous contracts. Mālikī jurists, however,

allow donation or gift of a non-existent object.27

Hence it is

permissible in their opinion to donate fruit a palm tree will

produce next year. According to other jurists the object of contract

should exist at the time of contract regardless of whether the

contract is commutative or gratuitous. Examples of non-existent

objects are:

(a) sale of fruits before they have made appearance;

(b) sale of unborn animal;and

(c) sale of milk in the udders.

Contracts of salam and istinā‟ are approved by way of

„Istisān (juristic preference) despite absence of the object of

contract.

4. Illegal purpose:

It is a requirement of valid contract that its object and motivating

cause should be lawful. Thus, any contract contrary to the

intention of the Lawgiver and against the objectives of the

Sharī„ah is considered invalid in Islamic Law. Therefore, selling a

weapon to a person who will use it to kill an innocent person, to

enter a marriage contract in order to facilitate re-marriage between

the divorced couple are invalid contracts.

27

See Ibn Rushd, Bidāyat al-Mujtahid vol.2, p.331, Qarāfi, al-Furūq,

Beriut: al-Kutub al-Ilmiyyah,1986, vol.1, p.150; Ibn Juzy, al-Qawanīn

al-Fiqhiyyah,Beriut:Dār al-Ilm li al-Malāyīn,1973, p.352.


94

In conclusion, we may say that a contract is valid according

to the requirements of the Sharī„ah with regard to its essence and

external attributes while a void contract is contrary to Islamic Law

both in its essence as well as external attributes; it does not give

rise to any effect.

Conclusion

The above discussion may be summarized as follows:

◘ A aī (valid) contract is that whose basic elements,

conditions and external attributes are in accordance with

Islamic Law.

◘ A bāil (void) contract is contrary to Islamic Law both in its

essence and external attributes. It does not give rise to any

effect

◘ A fāsid (irregular) contract is one whose elements and

essential conditions are valid according to the Sharī„ah, but

an external attribute attached to the contract has been

prohibited by Islamic Law.

◘ Important causes of irregularity are defective consent, want of

knowledge, invalid condition and element of ribā,.

◘ An irregular contract can become a valid contract by the

removal of the cause of irregularity.

◘ Ownership in an irregular contract is transferred to the buyer

by the possession taken with the consent of seller, not merely

by the contract.

◘ In an irregular sale contract the value or the market price of

the thing and not the agreed price is paid to the seller.

Chapter 8

Extrinsic causes of Invalidity:

Gharar (Uncertainty)

Gharar is one of the major causes of the Invalidity of a contract. It

is an external prohibited attribute that invalidates the contracts.

Literally, gharar means risk or hazard. Taghrīr being the verbal

noun of gharar is to unknowingly expose oneself or one‟s

property to jeopardy.1 It includes such elements as doubt,

suspicion, uncertain conditions, the absolute lack of knowledge

about and in determinability of the basic elements of the subject-

matter.

Definitions of Gharar

◘ According to Sarakhsī: Gharar takes place where the

consequences (of a transaction) remain unknown.2

◘ According to Ibn-azm: Gharar in sales occurd where the

purchaser does not know what he has bought and the seller

does not know what he has sold.3

◘ Ibn „Ābidīn defines gharar in the following words: Gharar is

uncertainty about the existence of the subject-matter of sale.4

1 Moammad Siddīq Darīr, al-Gharar fī al-„Uqūd wa Āthāruhu fī al-

Tatbīqāt al-Mu„āirah, p.10. 2Sarakhsī, Abū Bakr Muammad Ibn Amad, al-Mabsūt, Beriut:Dār al-

Marif,1978,vol.13, p.194. 3 Ibn azm, al-Muallah, Dār al- Āfāq al-Jadīdah,vol. 8, pp. 343-389.

Extrinsic causes of Invalidity: Gharar (Uncertainty)

96

◘ Ibn al-Qayyim has described gharar as being the subject

matter, the vendor is not in position to hand over to the buyer

whether the subject matter exists or not.5

◘ According to Ibn Rushd, gharar is to be found in contracts of

sale when the seller suffers a disadvantage as a result of his

ignorance, with regard to price of the article or the

indispensable criteria relating to the contract or its object or

quality or time of delivery.6

◘ Sanhūrī, an eminent modern jurist is of the view that lack of

knowledge about the material terms of contract is the distinct

feature of a gharar contract. He says that gharar takes place in

the following circumstances:

(a) when it is not known whether the subject-matter exists;

(b) if it exists at all, whether it can be handed over to the

buyer;

(c) when want of knowledge affects the identification of the

genus or species of subject matter;

(d) when it affects its quantum, identity or necessary

conditions;and

(e) when it relates to the date of a future performance.7

Forms of gharar according to Ibn Juzy

Ibn Juzay, a Mālikī jurist, has given a list of ten cases, which

constitute in his view, a forbidden gharar:

(i) Difficulty in putting the buyer in possession of subject-

matter, such as sale of a stray animal or the unborn offspring

when the mother is not part of the sale.

4 Ibn „Ābidīn, Radd al-Mutār, vol. 4, p.147.

5 Ibn al-Qayyim, I‟lām al-Mu‟qqi„ īn, vol. 1, p.357.

6 Ibn Rush, Bidāyat al-Mujtahid, vol. 2, p.156.

7 Sanhūrī, Maādir al-aqq, vol. 3, pp.31-41.


97

(ii) Want of knowledge with regard to the price or the subject

matter, such as the vendor saying to buyer, “I sell you what is

under my sleeve”.

(iii) Want of knowledge with regard to the characteristics of the

subject-matter such as the vendor saying to the potential

buyer: “I sell you a piece of cloth which is in my home”.

Another example is the sale of an article without the buyer

inspecting or the seller describing it.

(iv) Want of knowledge with regard to the quantum or the price or

the quantity of the subject matter, such as an offer to sell “at

today‟s price” or “at the market price”.

(v) Want of knowledge regarding the date of future performance,

such as an offer to sell when a particular person enters the

room or when a particular person dies.

(vi) Two sales in one transaction, such as selling one article at

two different prices, one for cash and the other for credit; or

selling two different articles at one price: one for immediate

remittance and the other for a deferred payment.

(vii) Sale of what is not expected to revive such as the sale of a

sick animal.

viii) Bay„ al-asāt, which is a type of sale whose outcome is

determined by throw of a stone.

ix) Bay„ al-munābadhah; a sale performed by the vendor

throwing a cloth at the buyer and achieving the sale

transaction without giving the buyer the opportunity for

properly examining the object of sale.

x) Bay„ al-mulāmasah, where the bargain is struck by touching

the object of the sale without examining it. 8

Forms of gharar transactions according to Siddīq al-Darīr

Siddīq al-Darīr an eminent modern scholar of Sharī„ah has given a

detailed list of transactions that involve element of gharar.

8 Ibn Juzy, Qawanīn al-Akām al-Shar„iyyah, pp. 282,283.


98

Gharar, in his view, sometimes relates to the form of contract and

sometimes to its subject matter. 9

I- Gharar or uncertainty relating to īghah (form) of contract:

The transactions belonging to this category are as follows:

1. Two Sales in one: Two sales in one means that a single

contract relates to two sales. It is where a seller says to a

buyer: “I sell you this commodity for hundred (Rupees) on

cash and hundred and fifty on credit”, and the buyer accepts it

without specifying the price at which he will buy the

commodity. The gharar inherent in this contract is

indeterminacy of the price. Thus the seller does not know at

which price the buyer will buy the object.

2. Earnest money („Arbūn) sale: It is a sale in which a person

buys an item and pays a certain amount of money in advance

to the seller on condition that if the transaction is completed

the advance will be adjusted and if the bargain is cancelled

the seller will not return the advance.

The majority of Muslim Jurists except Imām Amad, hold

that earnest money sale is invalid10

because it amounts to taking of

other‟s money without any compensation and also because it

involves uncertainty regarding the completion of transaction. Darīr is inclined to majority's view of invalidity.

11

In our view earnest money is in the nature of an option

contract. The money is being paid as a consideration to gain time

from the selling party. The selling party is reciprocating by

restraining himself in exercise of his legal right in respect of his

property. However, the earnest money cannot be forfeited if the

transaction cannot be completed because of the fault of selling

party.

9 Darīr, al-Gharar fī al-„Uqūd, pp. 13-30.

10 See Bidāyat al-Mujtahid, vol.2, p.161, Ibn Qudāmah, al-Shar al-

Kabīr, vol3, p.63; Ibn Juzy, al-Qawānīn al-fiqhiyyah, p.258; Shirbīnī,

Mughnī al-Mutāj, vol.2, p.39. 11

See Darīr, al-Gharar fī al-uqūd , p.14.


99

3. Contingent Sale: It is a contract that is contingent upon a

condition e.g. “I sell you my house if A sold his house to me”. The

gharar at work behind this contract is that it is contingent upon the

happening of an uncertain future event. Such sale is void in the

opinion of the majority of Muslim Jurists. Imām Ibn Taymiyyah

regards it valid.12

4. Contract effective from future date: It is a contract, which

comes into effect at some future date e.g. the contract, shall be

effective from such and such date. The gharar contained in such

sale according to Darīr is the possible change in price or other

circumstances of the sale, which may affect real consent of the

contracting parties when the time of performance approaches. But

the fact is that there is no gharar in such sale. This sale is also

valid in the opinion of Imām Ibn Taymiyyah.13

II. Gharar or uncertainty relating to subject- matter:

This is of the following eight types:

1. Uncertainty regarding the genus of the object: It is where

a person says to another. “I sell you an item for ten”, and does not

specify the object of sale.

2. Uncertainty regarding the kind of the object: Uncertainty

and indeterminacy pertains to kind if the seller tells the buyer: “I

sell you an animal at such and such price”, without indicating the

kind of animal.

3. Uncertainty regarding attributes of object: It is where the

necessary attributes of the object of the sale are not described.

The opinion of Muslim Jurists is divided regarding the

requirement of describing the subject-matter. anafī Jurists are of

the view that the description of subject-matter is not necessary as

long as it is present and visible for the buyer. But if the subject-

matter is not visible, its description is necessary. Some anafī jurists disagree with this view and hold that description is not

necessary as long as the right of inspection is established for the

12

Ibid: p.16. 13

Ibid: p.17.


100

buyer. By exercising this right he can reject the object if it does

not correspond with description. But the proponents of description

do not accept this argument. They say that right of inspection is

given to buyer only to remove light uncertainty not the excessive

one resulting from leaving a thing undescribed. An invisible

object, therefore, should be described at the time of contract, and if

some uncertainty still remains, it may be removed by exercise of

right of inspection.14

Mālikī jurists regard description of subject-matter obligatory

irrespective of the fact that it is present or absent, visible or

invisible.15

Three opinions are attributed to Shāfi‟ī jurists: First, sale is

not valid until detailed description is given as in salam sale.

Second, sale is not valid until relevant attributes are mentioned.

Third, sale is valid even without mentioning attributes of object as

long as the buyer has right of inspection.16

The anbalī jurists maintain that sale of an object with

unknown attributes is not permissible.17

Some sales prohibited explicitly by the text due to uncertainty

of the attributes are:

(i) sale of unborn calf without its mother;

(ii) sale of embryos; and

(iii) sale of bull„s sperm etc.

As regard selling what is hidden in the ground such as carrot,

onions, garlic, it is allowed by anafī jurists provided the buyer

exercises the right of inspection when he uproots them. The sale of

above mentioned things is invalid according to Imām Shāfi„ī and

Imām Amad as long as they are hidden in the ground.

To Imām Mālik it is permissible only when the buyer

acquires complete knowledge about the object of sale.

14

Ibn Ābdīn al-Durr al-Mutār, vol. 4, p.29. 15

Ibn Rushd, Bidāyat al-Mujtahid, vol. 2, p.148. 16

Abū Zakariyyā Nawawī, al-majmū' Cairo: Maktabah al-Āimah,1966,

vol.9, p.288. 17

Abū Isāq Shirāzī, al-Muhaddab, Cairo: Dār al-Nar vol.4, p.109.


101

4. Uncertainty regarding the quantity of the object: The

knowledge of the quantity of object is necessary for validity of

sale. Thus, to sell a heap of grain haphazardly without reference to

its quantity is impermissible.

A traditional example of uncertainty regarding the quantity

of object is muzābanah. It has been explained as sale of fresh dates

on the palms against harvested dried dates. It implies buying

something whose number, weight and measure is not known.

5. Uncertainty regarding specification of object: Gharar

relates to specification when things of different entities are sold

without specifying one of them in particular such as in the sale of

a piece of cloth out of bulk or a sheep out of a herd. Such sale is

invalid according to Shāfi„ī and anbalī jurists on account of non-

specification of object.18

anafī jurists allow it to the extent of

three items.19

For example, the seller tells the buyer: “I sell you

one sheep out of these three sheep.” This sale is valid provided the

buyer has the right to select one out of three later on. Mālikī jurists

allow such sale with option of determination for the buyer, without

fixing any number. Thus, it can be affected on small number as

well as on large number.

6. Uncertainty regarding the time of performance: If the sale

is on credit i.e. on deferred payment basis, the time of payment

should be made known to the seller.

7. Uncertainty regarding the existence of object: This is

another form of gharar, which relates to non-existent commodity

such as sale of what this animal will produce.

Some jurists have reported ijmā„ (consensus of opinion) of

Muslim jurists on declaring sale of non-existent object invalid.

They cite in support of this view a adīth narrated by Abū

Hurairah (r.a.t.a) that Holy Prophet (s.a.w.s.) prohibited gharar

sale.20

Gharar refers to a thing which is not known and whose

outcome is concealed.

18

Ibid; vol.1, p.863;Ibn Qudāmah, al-Mughnī, vol.4, p.131. 19

Kāsānī , Badā‟i„ al-anā‟i„, vol.5, p.158. 20

Qarāfī, al-Furūq, vol.1, p.150; Ibn Rushd, Bidāyat al-Mujtahid, vol.2,

p.331.


102

The fact is that the adīth prevents only that non-existent

which involves gharar such as sale of unborn calf but the things,

whose existence is certain in future, are permissible objects of sale

because they do not involve any gharar, which may lead to

dispute and litigation among the parties. An example of this case is

salam ((sale of future goods with advance) and istinā„ (contract

of manufacturing). Both are permissible in the Sharī„ah although

the subject-matter does not exist at the time of contract.

8. Uncertainty regarding delivery of object: Inability of seller

to deliver the object of sale to the buyer also forms gharar, which

invalidates the contract.

Examples:

◘ Sale of stray animal whose whereabouts are not known to the

owner.

◘ Sale of a car which has been stolen by somebody and the

vendor does not know where is it,

◘ Sale of goods yet to be acquired by the seller.

Effect of gharar on contracts

Gharar primarily affects commutative contracts meant for

alienation of property for consideration such as sale and hire. The

effect of gharar on hire is the same as on sale contract. Some

points of similarity between the two contracts with regard to the

effects of gharar are as follows:

(i) „Arbūn (earnest money) is impermissible in hire as it is

unlawful in a sale contract.

(ii) Both the sale and hiring contracts are not allowed to be

made contingent upon some uncertain future event.

The rent and rented utility in a hiring contract should be

known and specified in the same way as price and commodity

should be known in sale contract.

(iii) It is a condition of valid sale that its subject-matter

should be deliverable. The same rule applies to hiring


103

contract. As such, the ijārah of stray animal is not

permissible.

(iv) The time of ijārah should be fixed. In a deferred

payment sale the time of payment of price should also be

fixed.

The Muslim jurists differ on the effects of gharar on

gratuitous contracts. To Mālikī jurists, gharar has no effect on

donations.21

Thus, it is valid to donate escaped animal, fruits

before they ripen. But according to Shāfi„ī, anafī and anbalī

jurists, the subject matter of donation should be known and

determined. They do not allow the donation of an unborn animal

or milk in the udders.22

As regards will, all the jurists are unanimous that it is valid

even if the subject matter is non-existent, undetermined and

outside the control of testator or beneficiary. It is, therefore,

permissible to make bequest of what an animal or a tree will

produce. It is also valid to make bequest of an undetermined

portion of property. This testament is treated valid and it is the

duty of the heirs to specify that portion.

Insurance: A modern contract of gharar

Definition

“A contract of Insurance is one whereby one party, i.e., Insurer

promises in return for a money consideration, i.e., the premium to

pay to the other party, i.e., the insured, a sum of money or provide

him with some corresponding benefit, upon the occurrence of an

event specified in the contract”.23

The premium is a price of an insurance policy. “It is the price

at which the insurer i.e. the company is prepared to take risks and

bear the burden of the probable loss involved in the contract of

insurance. On the basis of law of averages and through experience

21

Shirāzī , al-Muhaddab vol. 1, p.453. 22

Kāsānī , Badā‟i„ al-anā‟i„, vol.6, p.188. 23 Parkington and Anthony On Insurance Law, London: O‟Dowd Sweet

& Maxwell 17th

Edition, 1981, p.3.


104

the insurer finds a reasonable amount sufficient to cover his risk as

well as other charges including his profit.24

An insurance policy

aims at providing compensation for potential loss or damages that

are specified in the contract. For example when a person insures

his car with the insurance company he gets an undertaking from

the company that it will undertake repairs of the damage, which is

caused to the car of insured as a result of an accident.

A contract of insurance is normally a contract of indemnity

because it insures a compensation for loss to the insured. The life

insurance and personal accidents insurance, however, are not

contracts of indemnity for in all such cases, the insurer has to pay

compensation on the happening of an event without reference to

loss.25

Types of Insurance

With regard to the subject matter of insurance and the risk covered

by it, Insurance is of the following four types:26

1. Life Insurance:

This is insurance against the loss of life. The objective of life

insurance is to provide financial help to the families of insured

persons after their death so that in their absence the families do not

become destitute and public charges.

2. Health Insurance:

Health insurance policy covers expenses of medical treatment of

insured in case of his illness or bodily injury.

3. Property Insurance:

Property Insurance policy provides compensation to the insured

who suffered some loss or damage consequent upon occurrence of

a catastrophe or disaster inflicted upon his property, assets and

other belongings.

24

Liaquat Ali Khan Niazi, Islamic Law of Contract, p. 384. 25

Ibid, p. 386. 26

See M.A. Chishti, Islam and Insurance: Alternative options, paper

presented at Senior Officers Training Programme held in Islamabad on

Feb.24-, 1992.


105

4. Liability insurance:

This is also called third party insurance. It refers to a situation

where a person/institution incurs some liability towards a third

person. These policies cover a variety of business and professional

liability exposures. They protect people and organization against

financial loss due to legal liability claim. In liability insurance the

insurance company undertakes to compensate the effectee on

behalf of insured person/institution.

Sharī‘ah appraisal

A large number of contemporary Muslim jurists regard modern

commercial insurance invalid and incompatible with the

injunctions of Islamic Law.27

Islamic Law does not allow gharar

transactions in which the seller does not know what he has sold

and the purchaser does not know what he has purchased. In

insurance, the buyer of insurance policy does not know what he

has bought by his premium. The time of occurrence of event is

also uncertain for the parties. As such, insurance is primarily a

gharar contract.

Types of gharar in insurance

The element of gharar inherent in the insurance is of the following

types:

1. Uncertainty about the payment of insurance amount:

The opponents of insurance assert that there is uncertainty as to

whether the insured person will be able to get amount of

compensation. In other words there is uncertainty about what the

insured personbuys with the premium.

27

See Muftī Muammad Shafī, Bīmah Zindagī, Karachi, Dār al-Ishaat;

Abul Alā Mawdūdī, Maāshiyāt-e- Islām,Lahore: Islamic

Publications,1988; ussain āmid, ukm al-sharīah al-Islāmiyyah fī

uqūd al-Tāmīn, Cairo:1976; Muammad Siddīq Darīr, al- Gharar wa

Atharuhū fi al-Uqūd, Cairo:1967; Zuhaylī, al-Fiqh al-Islamī wa

adillatuhū, vol.4,p.671;Muliuddīn , Insurance and Islamic law,

Lahore: Islamic publications,1978. See Majallah al-Buūth al-

Islamiyyah, Riyadh, vols. 19-20, 1987, Pakistan :Council of Islamic

Ideology, Report on Islamic Insurance system,1992.


106

For this purpose one may take the example of car insurance.

In this type of insurance the insured person drives car throughout

the year. If he does not come across any accident, he can make no

claim against the company and thus his premium money is wasted

without any material benefit occurring to him. On the other hand,

if he comes across a serious accident which causes extensive

damage to his car, in that case the company pays him several times

greater than the premium he has paid. This shows that the insured

does not know at the time of contract what he buys by the amount

of premium. This mean that he gets nothing if the accident does

not occur. On the other hand, he gets several times greater than the

premium he paid, if he comes across serious accident. Both these

situations are uncertain for him.

2. Gharar with regard to time of payment:

Another form of gharar is uncertainty about the time of

occurrence of event, and the time of the payment of compensation.

The particular event against which insurance is required, is

uncertain in nature. The parties to the contract do not know at the

time of contract, whether the event will occur or not. If the event

occurs it will bring pecuniary benefits in compensation for the

insured and if it does not occur, he will get nothing. Thus, the

acquisition of pecuniary benefits depend upon the occurrence of

the event specified in the contract.

3. Gharar with regard to quantum :

This means that the insured person does not know at the time of

contract how much compensation he will get because it depends

upon the magnitude of the unpleasant event which is the subject

matter of contract.28

View Point of Proponents of Insurance Regarding Gharar

In opposition to the view as described above, another group of

Muslim scholars hold the view that insurance is not contrary to the

Shariah. These scholars do not see an element of uncertainty in it.

28

ussain āmid, ukm al- Sharīah al-Islāmiyyah fī uqūd al-Tāmīn,

pp.84-86; Darīr, al- Gharar wa Atharuhū fi al-Uqūd, p.65; Majallah

al-Buūth al-Islāmiyyah, Riyadh, vols. 19-20, 1987.


107

Some scholars of this group admit that there is an element of

gharar in insurance but it is not too large to call for the invalidity

of contract.

Their view point is discussed here in some detail:

I. Insurance does not contain gharar:

This view suggests that there is no uncertainty in the contract of

insurance. In insurance what a person buys when he seeks

insurance cover, is not the amount of compensation he receives

when something happens to him or to his property. What he buys

in fact is peace of mind. This is tangible return for the money he

pays. This peace of mind is fair return on his investment. If

something happens to him or to his property, he is compensated

and his loss is redeemed. But if nothing happens he is happier,

because he does not have to contend with any misfortune.

This assertain is factually incorrect. The buyer of the policy

does not buy the peace or security by the premium he pays,

instead, he buys the amount of insurance. This is clearly indicated

in the contract. The contract specifies that the premium is price for

amount of compensation. It does not refer to peace or security as

consideration of premium. This goes without saying that human

emotion are not tangible property which is sold or purchased. No

one can promise the other that he will provide him pleasure, peace

of mind or tranquility. This is an undertaking which the undertaker

is unable to fulfill.

II. Gharar in Insurance is of small degree:

This suggests that the gharar contained in insurance is of small

degree. Therefore, it does not call for the invalidity of contract.

The reason is that insurance company can predict the chance of

actual occurrence of event. It determines the risk through its past

experience and scientific observation of certain incidents. The law

of large number helps the company to calculate the number of

likely happenings with some accuracy. This law points to the fact

that some quantities which are uncertain and changing in

individual cases, being different for each one, remain constant for

a large group of similar persons. The gap between the probable

and actual number of these accidents can also be determined. As


108

such the element of gharar is negligible in the contract of

insurance. 29

Muafā Zarqā asserts that the prohibition of gharar is

confined to the area of sale contracts when the outcome of a sale is

not certain but depends upon chance. Forbidden gharar occurs

only when uncertainty exceed acceptable limits.30

An insurer can

by the simple use of the law of average know and determine the

amount received from and given to the insured person.

If we consider this particular aspect, we find that the assertion

that the element of uncertainty in insurance is negligible, is not

correct. Insurance by its nature is a contract of uncertainty. Gharar

and uncertainty always remain distinct features of this contract.

But if we suppose for a while that it is not a contract of uncertainty

because the company has the ability to predict the event with some

accuracy, this remain an undeniable fact that the event is always

uncertain for the insured person. He does not know whether it will

happen or not. Thus, it is an uncertain contract for him.

Islamic Alternative to insurance business

Takāful or mutual guarantee is generally considered as an Islamic

alternative to the modern insurance business. Takāful refers to an

agreement among group of people called participants to guarantee

jointly that, should any of them suffer a catastrophe or disaster, he

would receive certain sum of money to meet the loss or damage.

Thus, it is a method of mutual help. Since the contributions in

takāful business are invested on the basis of muārabah, it is also

known as solidarity muārabah.31

In takāful, the concept of waqf

29

See Muafā Zarqā , Aqd al-Tamīn wa Mawqif al-Shariah Minhu,

Damascus : University Press,1381/1962. Muammad Nejatullah iddīqī,

Insurance in an Islamic Economy, Leicester: The Islamic Foundation

1984. M.A.Chishtī , Islam and Insurance Alternative options, Islamabad:

International Institute of Islamic Economics,1992. 30

See Muafā Zarqā, Nizām al-Ta'mīn wa Mawqif al-Sharī'ah

Minhu,Paper presented at first International Conference on Islamic

Economics, Makkah, 1976. 31

See Chaudry Muammad ādiq, Islamic Insurance (takāful) concept

and practice, Encyclopaedia of Islamic Banking and Insurance, p.198,

London: Institute of Islamic Finance and Banking , 1995.


109

or donation is combined with that of muārabah. A participant,

while entering takāful business, concludes two contracts, i.e., (i)

Contract of donation or tabarru‟ whereby he undertakes to donate

a portion of his contribution in waqf or tabarru‟ fund established to

provide takāful benefits to any participant who suffers some

material loss or damage; and (ii) Contract of muārabah whereby

he undertakes to pay a portion of his contribution to the company

for the purpose of business on the basis of muārabah. Takāful

benefits, i.e., insurance benefits are paid from waqf or tabarru‟

(donation) fund. But if the fund proves insufficient, then the

deficit is covered from the profits of muārabah business, if any,

or from the capital of muārabah. The participants in takāful may

also be required to make additional contributions for this purpose.

Thus, the participants in takāful or solidarity muārabah have the

right to share the profits generated by such muārabah business,

but at the same time they are liable for contributing to amounts in

addition to the premiums they have already disbursed, if their

initial premiums paid during a particular year are not sufficient to

meet all the losses and risks incurred during that year.32

In other

words the sharing of the profit or surplus that may emerge from

the operations of takāful is made only after the obligations of

assisting the fellow participants have been fulfilled.

Under muārabah agreement the participants pay their

contribution to the entrepreneur or muārib, i.e., takāful company

to invest that money in some profitable business in accordance

with Islamic modes of investment. The profits are shared by the

participants and the takāful company (in its capacity as muārib)

according to a ratio agreed upon between contracting parties.

There are two types of takāful (insurance) business usually

managed by takāful companies, i.e., life takāful (insurance) and

general takāful. Under life takāful, the company provides cover of

mutual financial aid in the form of takāful benefits in case of

untimely death of participant.

32

See Nabīl āli, Unlawful gain and legitimate profit in Islamic Law,

p.126.


110

The general takāful provides various policies and schemes to

a participant with a view to protect him against material loss or

damage arising from catastrophies, or disaster inflicted upon his

properties. General takāful are generally short-term contracts.

Amount of takāful contribution varies according to the value of the

property to be covered. Installments in general takāful are called

tabarru‟ (donation). Company Invests the tabarru‟ fund and the

profits accrued are allocated between the fund and the

management on the basis of muārabah. Indemnity is paid out of

tabarru‟ fund. If the tabarru‟ fund generates net surplus, then

unlike insurance, surplus is shared between participants and the

company33

.

Here we will dilate upon the working of takāful business in

Malaysia.

Working of the takāful business

Muārabah and tabarru‟, Involvement of these two Islamic forms

of business eliminates the elements of ribā and gharar from the

insurance contract. The operational details of different takāful

businesses are as follows:

Family takāful (Life Insurance)

Any individual between the ages of 18 to 55 years can participate

in the family takāful business. Participants are required to pay

sharikah takāful Malaysia regularly the takāful installments that

are then credited into a defined fund known as the family takāful

fund. Each takāful installment is divided and credited into two

separate accounts namely, the Participant's Account (PA) and the

Participant‟s Special Account (PSA). A substantial proportion of

the installments is credited into the PA solely for the purpose of

savings and investment. The balance of the installments is

credited into the PSA as tabarru‟ for sharikah takāful Malaysia to

pay the takāful benefits to the heirs of any participant who may die

before his maturity of the family takāful plan. The amount

accumulated in the PA is investment in various types of business

33

Muammad Anwar, A Comparative Study of Insurance, and takāful,

Islamabad: Pakistan Institute of Development Economics, 1994, p. 14.


111

carried out according to Islamic financing techniques, and the

resultant profits are divided between the sharikah and the

participants according to a ratio, e.g., 30-70 agreed upon between

the parties. The participants‟ share is calculated according to their

individual share in the PA, and credited into their respective

accounts i.e. the PA and the PSA. For example if a participant is

paying RM 1000 to the sharikah as his installment the use of the

amount could be shown with the help of the following chart: 34

34

See Chaudry Muammad ādiq, Islamic Insurance (takāful) concept

and practice, Encyclopaedia of Islamic Banking and Insurance, pp.197-

208.

Family Takāful Fund

RM1000

Participant‟s

Special Account

RM2000

Participant‟s Account

RM978.00

All Family Takāful Fund RM1000

Investment profit

(Example: RM70)

70% (Example)

Participant

(RM49.00)

30%(Example)

Company (RM21.00)

Participant‟s

Special Account

RM22.00

RM1.08

RM23.08

Participant‟s

Account

RM 978.00

RM47.92

RM 1025.92


112

In case of occurrence of unhappy event, death or disability, the

sharikah makes payment to the policy holder or his heirs. The

amount desposited in the PA along with the profits plus some

amount from the PSA according to a formula is paid by the

company. This scheme is explained as under by considering some

cases.

Upon the occurrence of certain events the company will

arrange takāful benefits to the rightful claimant in the following

manner:

Case-1

In the event of: untimely death of the participant or permanent and

total disability suffered by the participant.

Should the participant die or suffer permanent and total disability

in the fifth year of participation, takāful benefit will be paid in the

following manner: -

(i) From Participant‟s Account

RM 978 x 5 (i.e. installments paid by the

Participant into his participants account from

the date of entry up to the date of death or

suffering of permanent and total disability

(PTD) together with profit if any, which have

been earned from investment for during the

same period, say

RM 4,890.00

RM 400.00

(ii) From participants special accounts (i.e.

outstanding amount of takāful installments

that would have been paid should the

Participant survive).

RM5000.00

Total takāful Benefit Payable. RM 10,290.00

For the PTD cover takaful benefit shall be paid in ten equal

installments annually.

Case No 2


113

If Participant is still alive at maturity: Should the Participant

survive until the maturity of his Family takāful FTP, payment of

takāful benefit will be made to him as follows:-

i) From his Participant‟s Account = RM 9,780.00

RM 978 x 10 (i.e. total amount installments credited into his

Participant‟s Account from date of entry to the maturity)

together with the profit from investment if any, accumulated

during the same period. RM 1,800.00

(ii) From Participant‟s Special Account‟s, surplus, if any as

determined.

(b) By Sharikah Takāful. RM XXX

Total Takāful Benefit = RM 11,580.00 + surplus as

determined by Sharikah

Takāful..

Case No 3

In the event of untimely Death of Participant due to accident:

Based on the above example, should the participant

suffered death due to accident, then the total takāful

benefits payable will be as follows:

(a) If the Participant died in the fifth year of participation, the

payment of the benefit will be in the following order:

(i) From Participant‟s Account RM 4.890.00

RM 978 x 5, and profit from Investment if any,

accumulated in the Account during the same period, say

RM 400.00

(ii) From Participant‟s Special Accounts RM 5,000.00 =

RM 1000 x 5 (i.e. outstanding or balance of takāful

installments to be paid by the Participant should he

survive until maturity).

(iii) From Group Family Takāful Account.

RM 15,000.00 Total Takāful Benefit. RM 25,290.00


114

(b) If Participant suffered bodily injury arising from accident,

Such as loss of arm or leg (rates of benefit fixed according to

scale of disability or injury), then the amount of takāful

benefits payable will be made from Group Family Takāful

Account only, as follow: 50% x 15,000.00 RM 7,500.00

Case No 4

In event that the Participant is hospitalized:

Based on the same example, should the Participant be

warded into any hospital for a period of 5 days the takāful

benefit will be made from Group Family Takāful Account as

follows:-

30 x 5 days. RM 150.00

General Takāful Business

General takāful schemes are basically contracts of joint guarantee,

on a short-term basis, based on the principle of muārabah ,

between a group of participants to provide mutual compensation in

the event of a defined loss. The schemes are designed to provide

protection to both individuals and corporate bodies against any

material loss or damage consequent upon a catastrophe or disaster

inflicted upon properties, assets or other belongings of its

participants.

In consideration for participating in the various schemes,

participants agree or undertake to pay takāful contributions as

tabarru‟ for the purpose of creating a defined asset as illustrated in

the „General Takāful Fund‟. It is from this Fund that mutual

compensation would be paid to any participant who suffers a

defined loss or damage arising from a catastrophe or disaster

affecting his property or belonging.

As the muārib, Sharikat Takāful Malaysia invests the Fund.

All returns on the investment are pooled back to the fund. In line

with the virtues of mutual help, shared responsibility and joint

guarantee as embodied in the concept of takāful, compensation or

indemnity is paid to any participant who suffers a defined loss.


115

Other operational costs for managing the general takāful business

such as the cost of arranging re-takāful program and setting up of

reserve is also deducted from the fund.

A participant who wishes to participate in a general takāful

scheme such as Motor takāful to cover his motor vehicle, Fire

takāful to cover his house from loss or damage against fire or

Public liability takāful to cover against his third party liability,

pays a certain sum of money called takāful contributions. The

amount of takāful contribution varies according to the value of

property or asset to be covered under the scheme. If no claims are

made or incurred and after deducting all the operational costs, the

fund registers a surplus, it is shared between the participants and

sharikat takāful Malaysia according to an agreed ratio such as 6:4;

5:5. Profits attributable to the participants are paid on expiry of

their respective general takāful schemes provided they have not

received or incurred claims during the period of participation.

The general takāful business is different from family takāful

as all the payments are credited to only tabarru account, and not

divided into two separate accounts. After deducting all

administrative costs and claims if this account shows some surplus

(or profit) it is distributed among the policyholders as well. The

problem here is that if the contributions of participants are

tabarru , then he should not get any profit on it, and if it is

considered as a loan then the surplus amount earned by him, will

amount to ribā. Therefore, the company should divide the

available funds into two separate accounts. If due to short period

of policy it is not possible to make investment and earn some

profit tabarru and subsequently no return should be given to

them. If the surpluses accumulate, then the regulatory body can

decide to reduce the amount of premium for next periods. It will

indirectly help the policyholders.

Sharī’ah appraisal of takāful business

The takāful business of Malaysia is satisfactory from Sharīah

point of view. It is constructed on the Islamic concepts of

muārabah and tabarru‟. It is also free from the element of ribā,

because the participant or the policyholder does not get a fixed

return on P.A. (Participant‟s Account), instead he gets a varied


116

income. His capital is subjected to the principle of profit and loss

sharing as enunciated in the tradition of the Holy Prophet (peace

be upon him) “profit goes side by side with the risk”. The amount

accumulated in P.A. is invested in various forms of business

strictly in accordance with Islamic techniques of financing and

investment.

As regards participants in special account, this is the same fund

which has been designated as waqf by the „Ulamā of Indo-

Pakistan. Being a contract of donation, any uncertainty about the

takāful benefits to be earned by any participant, does not affect the

validity of contract. A contract of donation with gharar and jahl is

permissible in the Shari‟ah. Thus a participant who dies or suffers

from total disability in the fifth year of participation, is entitled to

get his capital and profits along with five yearly installments from

participants special account i.e. from donation fund. This benefit is

lawful and does not form ribā because it has been paid as donation

to him. The Muslim Jurists are unanimous on the point that gharar

(uncertainty), invalidates the exchange contracts only and not the

contracts of donation. They say that the donation of stray or

unidentified animal, or fruit before its benefits are evident, or

usurped thing is permissible but their sale is unlawful. From this

we may conclude that takāful provides an Islamic alternative to

the present Insurance business.

Conclusion

The preceding discussion may be summarised as follows:

◘ Gharar refers to lack of knowledge about the material terms

of contract.

◘ Gharar takes place when it is not known whether the subject-

matter exists or not, or if it exists, whether it can be handed

over to the buyer or not.

◘ Following are some forms of gharar contract:

● Uncertainty regarding the existence of the subject-matter

● Inability to deliver the object of sale.

● Lack of knowledge with regard to necessary

characteristics of the subject-matter.


117

● Want of knowledge with regard to the time of

performance of contract.

◘ Some traditional types of gharar are:

● Two sales in one transaction

● Earnest money sale

● Bay„ al-munabadhah (Throw Sale)

● Bay„ al-mulāmasah (Touch Sale)

● Bay„ al-aāt (Sale taking place through pebbles)

● Contingent contract.

◘ Gharar affects commutative contracts, meant for alienation

of property for consideration such as sale, hire. It does not

affect gratuitous contracts such as waqf, donation, gift.

◘ The Modern insurance contract is a contract of gharar. The

element of uncertainty and lack of knowledge inherent in the

insurance relates to the occurrence of the event, i.e., the

subject matter of contract, the acquisition of amount of

insurance, its quantity and time of payment.

Chaper 9

Extrisic Causes of Invalidity

Rib also forms a major cause of the invalidity of contracts. It

operates mainly in the contracts of loan and surf (money barter).

Literal Meaning of Rib

Rib literally means increase, addition, and augmentation. The

Qur‟n has used the word rib in its literal meaning in Srat al-

Rm, which says:

وما آت يتم ممن رمبةا لمي ب و في أموال الناس فل ي بو ند الله وما آت يتم ممن زكاةض ت يدون وجه الله فأولئك هم الم عفون

“That which you give in usury in order that it may

increase on other people‟s property has no increase with

Allah, but that which you give in charity seeking Allah‟s

pleasure, has increase manifold.1

Technical Meaning of Rib

Technically, rib means an increase in the principal, stipulated in

loan transaction. So, anything chargeable in addition to the

principal amount as a contractual obligation falls under the

purview of rib and is, therefore, prohibited.

Ab Bakr Ja has defined rib in the following words:

“It is a loan given for stipulated period with stipulated

increased on the principal payable by the loanee.2

1 Qur‟n, 30:39.

2 Ja, Akm al-Qur‟n, Lahore: Suhail Academy


120

The above definition carries the following ingredients:

◘ Rib is an increase over and above the principal sum.

◘ It is an excess which is payable as a contractual

◘ It is excess, which is against a specified period of deferment.

It is evident from this explanation that the aboe definition

only covers that rib which occurs in loan transactions, i.e.

rib al-nasa‟ah or the rib al-jahiliyyah (rib of time of

ignorance). It does not touch upon the rib, which occurs in

barter transactions dealt with by the Sunnah of the Prophet

(s.a.w.s.).

An eminent scholar, Muammad „Al Thanw, author of Kashshaf

Istilaht al-Funn, has defined rib in the following words:

“Rib is an increase without any corresponding

consideration which has been stipulated in favour of one

of the two parties, in a contract of exchange.”3

Ingredients of the definition

The following are the ingredients of definition:

◘ rib is an increase (actual or constructive),

◘ it is without corresponding consideration, i.e., without risk,

labour and capital;

3. the increase is stipulated in favour of one party,

4. it is stipulated in an exchange of property for property.

The distinct feature of this definition is that it embraces in its

ambit all forms of rib and does not restrict rib to loan

transaction referred to in the definition of Ab Bakr al-Jassas. It

describes rib in a comprehensive sense to include the rib of loan

transactions as well as rib of barter transactions. It encompasses

very return and all excess arising from exchange of property for

property regardless of whether exchange takes the form of loan or

sale of money for money or barter transaction between two

3 Muammad A‟l Thanw, Kashshf Itilht al-Funn, Beirut: Sharikat

al-Khayyt le al-Kutub, n.d., vol. 3, p.592.


121

homogeneous articles or transaction between two different

commodities.

Other Meanings and Definitiosn of Rib

1. Rib is the stipulated excess without a counter-value in sale.4

2. Rib is an excess according to a legal standard of

measurement or weight in one or two homogenous articles

opposed to each other in a contract of exchange and in which

such excess is stipulated as an obligatory condition on one

party without any return.5

3. Rib is an increase in one of the homogenous equivalents

exchanged without this increase being accompanied by a

return.6

4. Rib is an illicit profit or gain resulting from inequivalence in

the counter value of the reciprocal benefits during an

exchange of two articles of the same species and genus

governed by the same efficient cause.7

5. It is undue profit not in the way of legitimate trade out of the

loan of gold and silver and necessary articles of food.8

Rib in the Qur‟n

The Qur‟n has dealt with the issue of rib in the following verses:

These are produced below in order of their revelation.

Frist Revelation (5 years before Hijrah) Srat al-Rm, verse: 39

وما آت يتم ممن رمبةا لمي ب و في أموال الناس فل ي بو ند الله وما آت يتم ممن زكاةض ت يدون وجه الله فأولئك هم الم عفون

4 Sarakhs, al-Mubst, vol. 12, p. 105

5 Muammad „Al al-Dn akf, Tanwr al-Abr, Cairo: Matba‟ah al-

W„iz, vol. 2, p.255. 6 „Abd al-Remn, Kitb al-Fiqh, „l al-Madhhib al-Arba„ah, vol. 2,

p.246. 7 Nabl li, Unlawful Gain and Legitimate Profit in Islamic Law, p. 16.

8 Abdullah Ysuf „Al, The Holy Qur‟n: Translation and Commentary,

p. 15.


122

“That which you give in usury in order that it may

increase on other people‟s property has no increase with

Allah: But that which you give in charity seeking

Allah‟s pleasure, has increase manifold”.

In this verse Allah has expressed His disapproval of rib and

stated that rib does not carry a reward from Allah in the

hereafter. The wealth acquired through rib is deprived of the

blessing of Allah. Charity on the other hand, brings Allah‟s

blessing and favour.

Second Revelation Srat al-Nis Verse, 161 (Early Madnan

Period).

وأخذهم ال مبا وقد ن هوا نه وأكلهم أموال الناس بالباطل وأ تدنا هم ذابةا أليمةا للكاف ين من

That they took usury though they were forbidden and

that they devoured man‟s substance wrongfully, we have

prepared for those among them who reject faith a

grievous punishment.”

In this verse the Qur‟n tells us that rib was prohibited for

Jews and that they incurred the wrath of Allah for taking rib.

Third revelation (After Ghazwah Uud) Srat Al-„mrn, verse

130.

يا أي ها الذين آمنوا ال تأكلوا ال مبا أضعافةا م ا فةة وات قوا الله لعلكم ت فلحون

“O Believers! Take not doubled and redoubled interest

and fear God so that you may prosper.”

In this verse the Qur‟n has pointed out the heinous practice

of taking double and multiplied interest prevalent amongst Arabs.

The believers have been enjoined to refrain from such act.

Fourth Revelation (shortly after l-„mrn) Srat al-Baqarah

verse 275-277


123

الذين يأكلون ال مبا ال ي قومون إال كما ي قوم الذ ي تخب ه اللي ان من المسم ذلك بأن هم قالوا إنما الب يع ميل ال مبا وأحل الله الب يع

وح م ال مبا فمن جاءو مو ظة ممن ربمه فانت هى ف له ما سلف وأم و إلى {2/275}الله ومن اد فأولئك أصحاب النار هم فيها خالدون

يمحق الله ال مبا وي بي الصدقات والله ال يحب كل كفارض أثيمض إن الذين آمنوا و ملوا الصالحات وأقاموا الصلة وآت وا {2/276}

الزكاة لهم أج هم ند ربمهم وال خوو ليهم وال هم يحزنون

“Those who devour usury will not stand except as stands

one whom the Evil one by his touch has driven to

madness. That is because they say: “Trade is like usury”.

But God has permitted trade and forbidden usury. Those

who after receiving direction from their lord, desist shall

be pardoned for their past. Their case is for God to

judge. But those who repeat (the offence) are the

companions of the fire; they will abide there forever.

God will deprive usury of all blessings, but will give

increase for deeds of charity. For He loves not creatures

ungrateful and wicked. Those who believe and do deeds

of righteousness and establish regular, prayers and

regular charity will have their reward with their lord. On

them shall be no fear, nor shall they grieve.”

The fourth revelation severally censured those who take rib

and established clear distinction between trade and rib.

Fifth Revelation (9 or 10AH Farewell Pilgrimage) verse 278-280.

{2/278}يا أي ها الذين آمنوا ات قوا الله وذروا ما بقي من ال مبا إن كنتم مؤمنين فإن لم ت فعلوا فأذنوا بح بض ممن الله ورسوله وإن ت بتم ف لكم رؤوس أموالكم ال

قوا {279}تظلمون وال تظلمون وإن كان ذو س ةض ف نظ ة إلى ميس ةض وأن تصد لكم إن كنتم ت علمون خي

“O you who believe! Fear God and give up what remains

of your demand for usury, if you are indeed believers. If


124

you do it not, take notice of war from God and His

apostle, but if you turn back you shall have your capital

sums. Deal not unjustly and you shall not be dealt with

unjustly. If the debtor is in difficulty, grant him time, till

the time of ease, But if you remit it by way of charity,

that is best for you if you only know (al-Baqarah 278-

280).

Inferences drawn form these verses:

1. There is a sharp contrast between charity and usury. Usury

creates conflict, hatred, jealously and economic warfare

among individuals whereas charity promotes harmony,

cooperation and collaboration in the society.

2. There is distinct difference between legitimate trade and

usury. Not every surplus in transaction is forbidden. The

surplus, which is a result of selling and purchasing, is

legitimate and lawful. The surplus which one earns without

exertion and bearing risk and liability is prohibited.

3. The believers have been asked to give the remaining amount

of rib and permitted to receive their principal amounts. This

gives Quranic definition of rib, that is, any addition to the

capital in a transaction of loan is rib.

4. No distinction has been made between an addition in the

capital sum of the loan based on simple interest and an

addition based on compound interest.

5. No distinction has been made between a loan contracted for

the purpose of consumption and that contracted for

production.

6. The creditors have right to their capital sums only.

7. To demand excess in the capital is injustice to the debtor and

to deny the creditor his principal amount is an injustice to

him.

8. Continuing any further dealings in rib will amount to

inviting war from Allah and His Messenger.


125

9. Creditors have been asked to give time to debtors for

repayment of capital, if necessary.

10. To write off a debt altogether is an act of charity.

Forms of Rib al-Qur‟n, i.e. Rib al-Jahiliyyah

The rib mentioned in the Qur‟n was practiced by the Arabs in

the pre-Islamic period in the following three forms.

1. They advanced loan by stipulating excess over and above the

principal sum of loan contract. Thus, the increase was

stipulated in the beginning of the contract i.e. at the time of

advancing a loan. Ab Bakr al-Ja, writes in Akm al-

Qur‟n:

“The rib which was known to and practiced by the

Arabs was that they used to advance loan in the form of

dirham and dnr for a fixed term with an agreed excess

over and above the amount of loan.9

2. They used to advance loan on the condition that they would

take a fixed amount each month, while the principal amount

still remained. Thereafter, when it was time for the repayment

of the debt, they demanded the principal from the debtor. If

he was unable to pay, they increased the term and payable

amount.

3. They used to sell a commodity on deferred payment basis,

when the time of payment approached, the seller used to

increase the amount due and give him more time. Suy

explains this practice in the following words: “They used to

purchase a commodity on the basis of deferred payment, then

on the date of maturity the seller used to increase the amount

due in lieu of further delay”.10

Thus, the increase of amount

was not stipulated at the time of concluding contract of debt,

but at the time of maturity of contract.

9 Ab Bakr al-Ja, Akm ul-Qur‟n, Beirut: Dr al-Kitb al-„Arab,

vol. 1, p. 465. 10

Suy, al-Durr al-Manthr, Beirut: vol. 2, p. 72


126

Rib in Sunnah

The adth dealing with rib are of two categories: First, those,

which reaffirm the type of rib, mentioned in the Qur‟n. The

second categories are those that introduce a new form of rib, not

mentioned in the Qur‟n. This latter form of rib is known as Rib

al-fal.

A few of the adth relating to either category are

reproduced below:

The Frist Category of Adth on Rib

1. The Prophet (s.a.w.s.) is reported to have said in his last ajj

Sermon (the farewell address).

“Beware, all rib outstanding from the rib prevalent during

the pre-Islamic era is void. You are entitled to your principal

money. Neither shall you oppress nor shall you be

oppressed.11

2. “Beware! All rib of pre-Islamic era is annulled and the first

claim of rib which I cancel is that of my uncle”.12

3. From Jbir, who said: “The Messenger of Allah (s.a.w.s.)

cursed the one who charges rib; he who gives it; the one

who records it; and the two witnesses; saying that “they are

all equal”.13

The Second Category of Adth

1. From Ab Sa‟d al-Khudr, who said: “the Messenger of

Allah (s.a.w.s.) said: “Do not sell gold for gold except when it

is like for like; nor misappropriate one through the other; nor

sell silver for silver except like for like; nor misappropriate

one through the other, nor sell things that are absent for those

that are present”.14

11

Muslim, a, Chapter of ajj. 12

Muslim, a, Chapter of ajj 13

Bukhr, a, Kitb al-Buy„ Muslim, a, Chapter on Rib 14

Muammad ibn Ism„l San„n, Subul al-Salm, Beirut: Dr al-Fikr,

1938, vol. 3, p.37.


127

2. From „Ubdah Ibn mit who said; “The Messenger of Allah

(s.a.w.s.) said: Godl for gold, silver for silver, wheat for

wheat, barley for barley, dates for dates, salt for salt, like for

like, in equal weights, from hand to hand. If those species

differ, then sell as you like as long as it is from hand to

hand”.15

These two adth provide that the following three

transactions are usurious transactions.

(i) a transaction of money for money of the same denomination

where the quantity on both sides is not equal, either in a spot

transaction or in a transaction based on deferred payment.

(ii) A barter transaction between two weighable or measurable

commodities of the same kind, where the quantity on both

sides is not equal or where delivery from any one side is

deferred.

(iii) A barter transaction between two different weighable or

measurable commodities when delivery from one side is

deferred.16

Kinds of Rib

There are two main kinds of rib: rib al-Duyn and rib al-buy‟

(rib of debt transactions and rib of sale transactions) rib al-

buy„ is further divided into two kinds, i.e., rib al-fal and rib

al nas.

I) Rib al-fal (rib by way of excess)

It is the excess revealed through a Shar‟ah criterion stipulated in

one of the two counter-values, in transaction of exchange.17

The Shar‟ah criterion in this definition refers to weight or

measure of capacity or count. Thus, if two persons were

exchanging wheat with each other, the quantity must be equal on

both sides; if there is excess on one side, which would amount to

15

Ibid., vol. 3, p. 37. 16

Order of the Supreme Court‟s Appellate Bench on Rib. The News,

December 24, 1999 17

Ksn, Bad„ al-an„i„, vol. 5, p.183


128

rib al-fal (rib by way of excess). Rib al-fal takes place in a

homogenous exchange with increase from one side in terms of

weight or measurement. In the above example if 5 kg wheat is

exchanged for 6 kg wheat, that would amount to rib al-fal.

II) Rib al-Nas’ (rib of delay):

It is rib by way of dferment of completion of an exchange rib

al-nas‟ (rib by way of deferment) takes place when articles of

the same genera or different genera, whether measured or

weighed, are exchanged with deferment on one side, whether or

not there is real excess in favour of either side. Thus, if 5 kg gold

is exchanged for 5 kg gold with a delay of one year, it will amount

to rib al-nas‟ because it has arisen from a period of delay.

Rationale Underlying the Prohibition of rib al-fal

The rationale underlying the prohibition of rib al-fal can be

summarized in the following points:

1. In barter transaction, if the same commodity is exchanged it

is likely that a party with ability to judge difference in quality

will exploit the ignorance of less knowledgeable party in

giving him less than the real value of the commodity.

Therefore, the lawgiver has safeguarded him against injustice

and exploitation by stipulating that the exchange should be

equal on both sides.

2. An unequal exchange of the same commodity gives way to

hoarding, monopoly and profiteering. The rich man, for

example, gives 1 kg of superior dates for 5 kg inferior dates.

What actually happens that all the inferior dates are

transferred to the rich man at the cost of 1/5 amount of the

superior dates with him, with the following results:

(i) A huge amount of dates has been stored with the rich

man. He starts harding them.

(ii) The small quantity of the superior dates in the hands of a

large number of poor persons will soon be finished. Only

the inferior quality of dates will be left over in the

market.


129

iii) The rich man will monopolize the inferior dates and sell

them in the market at very high rates, even higher than

the normal market rates of the superior dates.18

3. By prohibiting rib al-fal, i.e., unequal exchange of the

same commodity, Islam has in fact encouraged the use of

cash money. The Prophet (s.a.w.s.) had instructed Bill

(r.a.t.a.) to sell two measures of dates for money and then

purchase superior ones with that money. Thus, the adth

relating to rib seek to promote money as medium of

exchange in the conomy.

4. Deferred delivery brings undue benefit for one party. For

example Mr. A sells $100 to Mr. B for Rs. 5500 to be

delivered next year. By next year the exchange rate in the

market has changed from 1 $ 55 Rs. To 1 $ 65 Rs. But Mr. B

will deliver Rs. 5500 only not Rs. 6500. This shows that

benefit of change in exchange rate over the year went to one

party i.e. in this case Mr. B. If exchange rate moved in other

direction, Mr. a would have been the gainer. In short one

party will gain while the other will lose.

5. The restriction levied in the adth of rib al-fal and rib

al-nas‟, seeks to forestall the entry of real rib through the

back door.

Underlying cause (‘illah) of the prohibition of rib al-fal and

rib al-nas’

The Muslim Jurists are unanimous on the point that prohibition of

rib al-fal and rib al-nas‟is not restricted to six commodities

mentioned in the adth. The prohibition is extendable to other

commodities, which resemble the six commodities with regard to

the „illah (underlying cause).

The Jurists employ the method of analogical reasoning in

extending the prohibition to other commodities besides the six

commodities contained in the adth of „Ubdah ibn mit.

18

Ghulm Murtaz, Socio-Economic System of Islam, Lahore: Malik

Sons Publishers, 1990, pp. 34, 35.


130

It is generally agreed that analogical reasoning is valid when

the following conditions are met:

1. Te „illah should represent the compelling factor which has

motiated or is intended by the legal rule; it should be plain

and consistent.

2. The same illah should appear in both elements of analogy,

object as well as subject. A mere resemblance between

attributes is not sufficient.

3. The general rule governing the object of the analogy should

be of general application and not restricted to a specific case.

The Jurists while agreeing on the application of the rule of

prohibition to other commodities disagree on the underlying

cause.

We now take up the viewpoints of the Jurists regarding the

underlying cause which is at work behind the prohibition of rib

al-fal and rib al-nas‟.

anaf View Point

The anaf Jurists consider the underlying cause to be similarity

of species, i.e. the exchanged articles belong to the same genus

and the similarity of the method of estimation, i.e., both articles,

besides being of the same genus, are weighed or measured when

they change hands.19

According to this interpretation, all

weighable articles such as iron and cotton if exchanged with each

other, must fulfill the requirement of equality or sameness in

quantity and simultaneous exchange. If the transaction fails to

meet the first condition, it will amount to rib al-fal and should

the transaction fall of meeting second requirement that would rise

to rib al-nas‟. Rib according to this viewpoint does not run in

eggs because they are neither weighed nor measured rather, they

are sold by count.

Shfi„ View Point

Shfi„ Jurists hold that the „illah for gold and silver is their being

prices of the things or the currency-value (thamaniyyah) and for

19

Ksn, Bad‟i al-San‟i‟, vol. 5, p. 183.


131

wheat, barley, dates and salt is food-value (u„m). Thus, rib runs

in vegetables if two vegetables of the same kind are exchanged

with each other either with excess or delay, since they belong to

the cvlass of foodstuff.20

Mlik Viewpoint

The Mlik Jurists determine the „illah for gold and silver by their

currency-value (thamaniyah), and for the remaining four articles

by their food-value provided they can be stored for a reasonable

time without perishing. Thus, rib does not run in vegetables and

fruits because these are perishable.

As regards Mliks, „illah for gold and silver can be extended

to any modern currency. Imm Mlik is reported to have said:

If the people of an age make currency out of the skins of

camels, and that becomes prevalent among the people, I view its

exchange with gold or silver with delay unlawful.21

This means that Imm Mlik applies the rules relating to arf

(money exchange) and rib to all such articles, which assumes the

status of currency.

The difference between the viewpoints of Imm Shfi„ and

Mlik on the „illah of gold and silver is that Imm Shfi„ while

considering both metals as currencies, restricts this attribute of

price-worthiness to these two metals. He regards these metals

money by creation. To him, no other thing can assume this role.

Thus the attribute operating in gold and silver, to Imm Shfi„ is

not of general application. Imm Mlik, on the other hand,

considers this rule, of general application and not restricted to a

specific case. So a homogeneous exchange of currency should

fulfill the requirements of equality in quantity and prompt delivery

from both sides. In case of heterogeneous exchange (dollars with

Rupees) the equality is not a requirement; however, it is necessary

that both currencies be exchanged in the same session of Contract.

20

Khatb Baghdd, Mughn al-Mutj, vol. 2, p.23. 21

Sahnn, al-Mudawwanah al-Kubr, Beirut: Dar Sadir, n.d. vol. 8,

pp.395, 396.


132

Delay or deferment in delivery by either party would make it a

contract of rib al-nas‟.

anbal View Point

Different versions relating to „illah are attributed to Imm Amad

ibn anbal.

(i) the „illah for gold and silver is twofold: the exchanged

articles belong to the same genus and they change hands by way of

weight. As for the other four articles quoted in the adth, the

„illah is again two fold; the exchanged articles belong to the same

genus and they change hands by way of measure. This viewpoint

is similar to that of the anaf School.

(ii) the „illah for gold and silver is their currency-value

(thamaniyyah), and for the remaining four articles, their food-

value (u„m). This version is close to that expressed by the Shfi„

and Mlk jurists.

(iii) the „illah for the four commodities is their being foodstuffs

which are weighable and measurable; thus there is no rib when

the exchanged foodstuffs are neither measurable nor weighable, or

when the exchanged counter-values are not foodstuffs.22

Some other Forms of Rib

Under this title we will deal with some other forms of rib, which

are doubtful contracts from the Shar‟ah point of view. The

contracts falling under this category cnform to the requirement of

the Shar‟ah with regard to ghah (form of contract) but their

objectives oppose the intention of the lawgiver, as they provide a

legal device and subterfuge to circumvent the obstacles posed by

rib prohibitions. A majority of Muslims Jurists, therefore, regards

such forms of contract invalid.

The following are some of these contracts.

1. Bay„ al-Inah:

Under this contract a person sells some object on credit for a

certain price and then buys it back at a price less than the sale

22

Ibn Qudmah, al-Mughn, vol. 6, pp.54-57


133

price on prompt payment, both transactions taking place

simultaneously in the same session of contract. We can understand

this from the following illustration.

A, sells a commodity to B for Rs. 100/- on a one-year‟s

credit. A, than buys the commodity back for Rs. 80/- from B on

immediate payment. In the above case, A is a creditor and B is a

debtor. A has advanced loan of Rs. 80/- under the cover of sale

transaction in which he earns a surplus of 20 rupees. Another form

of bay„ al-„nah is to sell commodity on cash and then buy it back

at a higher price to be paid at some specified time in future. In this

case, the prospectie debtor sells an object for cash to the

prospective creditors. The debtor immediately repurchases the

object for a higher amount payable at a future date. Thus the

transaction amounts to a loan with object as security. The

difference between the two prices represents the interest. It is

called „nayh because the „ayn (substance) in this case returns to

its owner. Financing under buy-back arrangement in Pakistan

resembles this contract.

The majority of Muslim Juriss consider this transaction

invalid because the intended objective of the transaction opposes

the objectives laid down by the Lawgiver. This form of

transaction, in their view, is nothing more than a legal device

aimed at circumventing the obstacle posed by the prohibition of

rib.23

These jurists establish the prohibition of this transaction by

a tradition of „‟ishah (God be pleased with her) when Umm

Maabbah informed her that she had a slave girl whom she sold on

credit to Zayd ibn Arqam for eight hundred dirhams. Zayd soon

decided to sell the salve, so Umm Maabbah bought her back for

six hundred on immediate payment. „‟ishah (God be pleased

with her) said, what you sold was bad, and bad was what you

bought. Make it known to Zayd that his jihd alongside Messenger

of Allah has been nullified, unless he repent”. Umm Muabbah

asked her, “What if I should just take my capital from him”. She

replied, “Those who after receiving direction from their Lord

desist, shall be pardoned for the past.” Imm Shfi„ maintains that

23

Zak Badawi, Nazariyyat al-Rib al-Muarram, Cairo: al-Majlis al-Ala

le reayah al-Funun, 1940, p.203.


134

bay„ al-„nah is permissible. The adth of ‟ishah is not

established in his view.24

2. Bay‘ al-Waf’

this is a transaction in which a person in need of money sells a

commodity to a lender on the condition that whenever the seller

wishes, the lender (the buyer) would return the purchased

commodity to him upon surrender of the price. The reason for its

designation as waf is the promise to abide by the condition of

returning the subject matter to the seller if he too surrenders the

price to the buyer.25

Like bay„ al-nah, this too is legal device for

rib. The purchaser in this case is a creditor who benefits from the

object held in his custody as pledge till the debtor pays him back

his amount and retrieves his object. Islamci injunctions on pledge

clearly provide that the creditor is not entitled to make profit out of

the pledged property. Any profit drawn from it is is interest.

3. att wa ta’jjal:

Under this transaction the lender hastens the repayment of his

delayed debt by taking an amount that is less than the value of the

debt.26

He accepts his money ahead of the time of maturity in lieu

of discount on his principal amount. This is similar to present day

practice of discounting of trade bills in the banks.

Viewpoints of Muslim Jurists regarding a wa Ta’ajjal

The opinions of Muslim Jurists are divided on the legitimacy of

a wa ta‟jjall.

First Opinion:

Discounting for hastening the payment is permissible. This

opinion is attributed to Ibn „Abbs, Nakh‟, Ab Thawr and Zufar.

They assert that the Holy Prophet (s.a.w.s.) had instructed Ban

Nar to reduce the amount owed to them and receive immediate

payment. It is reported that when Ban Nar were evicted from

24

Qurb, al-Jami li Akm al-Qur‟n, Cairo: 1353/1935, vol. 3, pp.

359, 360. 25

Ibn Rushd, Bidayat al-Mujtahid, vol.2, p.118. 26

Badawi, Nazaryyat al-Rib al-Muharram, p. 205.


135

Madinah, a group of them came to the Holy Prophet (s.a.w.s.) with

a complaint that they had been evicted at a time people owed to

them money, whose payments were not yet matured. The Holy

Prophet (s.a.w.s.) advised them to reduce the amount owed to

them and demand prompt payment.

Second Opinion:

This opinion suggests that the practice of discounting for

hastening the payment is not lawful. The majority of Muslim

Jurists subscribe to this opinion. They put forward following

arguments in favour of their standpoint:

1. A discount on the original amount for hastening the payment

is similar to taking excess on the original amount. This is because

in both the cases time is assigned a monestary value. Imm

Sarakhs said:

“If a person is in debt of one thousand dirham for a specified

period and he agrees with the creditor that he will pay him five

hundred dirhams and will make payment to him ahead of time

of maturity, it is not permissible, because the debtor has

forfeited his right in time for five hundred and the creditor has

also forfeited his right in five hundred in lieu of time, Hence it

is an exchange of time for money, which is not lawful in our

view.27

The real significance a wa ta‟jjal (reduce and hasten payment)

referred to in the adth is that the Holy Prophet (s.a.w.s.) had

instructed the Jews to give up their claims of interest or excess

over and above the principal amount and take back original

amounts only before thetime of maturity. In other words the Holy

Prophet (s.a.w.s.) allowed them to receive their delayed debts

before the time of maturity on the condition that they will reduce

the amount of debt. The hadith according to this interpretation

does not suggest reduction in the original amount in return for

immediate payment.

2. The adth of a wa ta‟jjal (discounting) came before the

prohibition of rib. The event of Ban Nar took place in fourth

year after Hijrah, then in the sixth year after Ghazwah Khayber

27

Sarakhs, al-Mabst, vol. 21, p.31.


136

came the prohibition of rib al-fal. Thereafter, in the year ten

after Hijrah the verses relating to rib were revealed which contain

final and conclusive prohibition of rib. Thus, the adth of

discounting is abrogated by the subsequent revelations on rib.28

Thrid opinion:

This opinion suggests that discounting is permissible if it is

affected without the condition of immediate payment. This means

that if the debtor repaid his deferred debt before time of maturity

and the creditor reduced some amount without its being a

contractual obligation, then it is permissible, because former is not

condition for latter.

Indexation of Loans and Rib

Inflation and the consequent erosion in the purchasing power of

money is an important contemporary issue confronting Muslim

Jurists, which has led to considerable debate and discussion.

Inflation essentially harms the interests of the lender since he

receives at the time of its return less money in terms of its

purchasing power that he had originally lent. Suppose one borrows

one thousand rupees from another for a period of one year. After

the year the rupees is devalued by 10 per cent. If the borrower

pays the lender one thousand rupees as per agreement, then he is

actually paying him 900 rupees only. This means that in terms of

purchasing power of money, he is paying him less than what he

has borrowed.

As a solution to this problem some Muslim Scholars suggest

that the borrower should try to compensate lender for the loss of

the value of money by giving such an extra amount, which at least

offsets the drop that results from inflation. For this purpose, they

have suggested that loans should be indexed to the rate of inflation

in the economy.

28

Ibid.


137

In view of the above, indexation is characterized as “a

scheme to link the nominal value of deferred payment to a suitable

index of the purchasing power of money.”29

A number of schemes of indexation have been proposed by

economists, of which three are especially noteworthy. The first

consists of linking indexation with general price level in the

economy, represented through a basket of commodities known as

the consumer goods basket. The second scheme consists of linking

indexation with the price of some specific commodity, which has a

stable value. In other words, it suggests that the loan should be

presumed to have been offered in that commodity itself. The third

scheme suggests that the loan should be offered and repaid in

terms of specially introduced financial instruments, which have

fixed value.

Muslim scholars are sharply divided regarding the validity

and legitimacy of indexation of loans. A group of scholars favour

indexation and does not see in it anything contrary to the

injunctions of the Shar‟ah, rather these scholars find it in

conformity with the principles of justice and fairness laid down in

the Qur‟n and the Sunnah. Those who hold indexation of loans to

be valid and legitimate in Shari‟ah include scholars like Rafq al-

Mir, Suln Ab „Al, M.A. Mannn, Ziauddn Amad, Salm

Quresh, „Umar Zubayr, Gul Muammad, Mawln Muammad

sn and several other scholars.

As against this, there is yet another group that maintains that

the idea of indexation does not conform to the teachings of Islam.

It involves an assumed positive return on loans. Those who

maintain this viewpoint are:

Muammad „Umar Chappra, Monzer Kahf, M. Nejatullah

iddq, Muammad asanuz Zaman, Mawln Taq Usmn, „Al

Amad Sals, and some other prominent scholars. The council of

Islamic Ideology of Pakistan has also expressed its opposition to

29

Munawar Iqbal, “Inflation, Indexation and role of Money”, Paper

presented in the workshop on Shar‟ah Position on Indexation, Jeddah,

1987.


138

indexation. The same view has been upheld by the Federal

Shar‟at Court of Pakistan.

In the following lines an attempt will be made to explain the

position of the Shar‟ah on the question and to analyse the

arguments of the proponents as well as the opponents of

indexation in the light of the general objectives of the Shar‟ah and

the relevant texts of Fiqh relating to the repayments of debts and

the exchange of currency.

Arguments of proponents

The arguments of proponents of indexation are summarized as

follows:

1) Justice and Fairness: The Justice and fairness in mutual

dealings are corner stones of the Islamic economic system. Qur‟n

repeatedly enjoins upon believers to be just and fair in their

dealings. It says, “God commands justice, the doing of good and

liberality to kith.”30

It also says, “Be just, that is nearest to piety”.31

It further further says, “You shall inflict no injustice and shall

suffer none.”32

It is undoubtedly true that inflation causes both

injustice and unfairness to the lender.

2. Principle of Redress of Harm: It is an accepted principal

of the Islamic Shar‟ah that no damage should be borne nor should

any be caused. Inflation causes a loss in the real value of monetary

receipts while Indexation provides redress against such damage.

3. Giving Full Measures: Islam has strictly forbidden the

practice of diminution in weights and measures, thereby depriving

others of their due rights. In this regards the Qur‟n says, “And

give full measure and weight with justice”.33

This Quranic instruction of giving full measures is not limited

to conventional weights and measures. It encompasses all

measures of value. In modern economies, money is the biggest

measure of value. Now in the period of inflation, the recipient

30

Quran, 16:90 31

Quran, 5:8 32

Quran, 2:279 33

Quran, 6:152.


139

does not receive what is really due to him. Indexation corrects this

situation.34

Arguments of the opponents of Indexation

The most serious objection raised by the opponents of Indexation

is that indexation involves an assumed positive return on loans.

Hence it is a form of rib. They do not favour the idea of

compensating lender for the loss he suffers as a result of inflation.

They find following demerits and flaws in the scheme of

indexation, from the Islamic point of view.

1) Garar and Jahl (uncertainly and lack of knowledge): It is a

requirement of the Shar‟ah that both the values in an exchange

contract („uqd al-mu‟awat) should be clearly determined.

Muslim Jurists are unanimous on the point that in a sale on

deferred payment, if the price to be paid by the buyer is not fixed,

it will render the contract void. Ibn „bidn says: “Fixation of

price is a requisite for the validity of a contract of sale. If the price

is left unspecified or market value is made the price of commodity

then the contract will be invalid.”35

This shows that the obligation

of the buyer in the contract of deferred payment should be fixed at

the time of making the contract. In the case of indexation,

however, the liability of the debtor is known only on the date it is

due.

2) Injustice and Unfairness: That the element of injustice and

unfairness is inherent in the indexation will be evident from the

following:

(i) In the Islamic Law of indermnity the one who has caused

wrong to someone is responsible for redressing or compensating

that wrong. Inflation and the consequent damage to the money of

lengener is never an act of the borrower. This loss would have

happened even if the lender had not lent his money. Hence, why

should the borrower be held responsible for the loss and be asked

to pay any compensation? Such a scheme obviously causes harm

to the borrower.

34

Munawar Iqbal, Inflation, Indexation and role of Money. 35

Ibn „Abidin, Radd al-Muhtar, vol. 5, p.60.


140

(ii) The basket of consumers‟ goods which is the most popular

method of indexation does not provide a just and fair standard for

determining the purchasing power of money. To quote the words

of asanuz Zamn:

“This basket represents the consumption habits of an

average person, which does not necessarily represent the

habits of actual men and women living in a society. This

average will be fair for some but an unjustifiable favour

for some others.”36

To explain this point further, it needs to be pointed out that a

large majority of our population does not consume most of the

goods contained in the basket. Their basket is generally restricted

to a few things only such as cooking oil, soap, pulses, and flour.

The consumer‟s basket, on the other hand, consists of about forty

items, which are hardly consumed by the majority. If such a basket

were adopted as a standard to determine the purchasing power of

money, it would be unjust and unfair to many people.

The Element of Rib al-Fal

Indexation also contains the element of rib al-fal. It involves an

excess in one counter value in the exchange of two commodities

of the same genus and conflicts with the adth which requires hat

a fungible good is to be returned by its like, and good quality and

bad quality have no relevance for such a contract. Thus, darkened

silver has the same value in weight as polished silver. There is a

consensus among the fuqah‟ that the sameness in the tradition

mentioned above, means sameness in kind and quantity, not in

value.

Rules for exchange of fungible goods

The fuqah‟ are so emphatic about “sameness” that they have

ruled out all considerations of value or quality. In order to realize

this objective they have laid down very clear rules so as to ensure

36

S.M. Hasanuz Zaman, Indexation of Financial Assets, an Islamic

Evaluation, Islamabad, International Institute of Islamic Thought, 1993,

p.40.


141

the sameness of quantity. Ibn Qudmah has mentioned some of

these rules:

(1) The loan of the dirham of unknown weight is not permissible.

(2) If dirhams are lent by weight, they should be returned by

weight.

(3) If dirhams are lent by counting their repayment must be by

counting.

(4) The borrower will be required to return the same quantity,

which he borrowed regardless of any change in price.37

It is due to this requirement of sameness that the Shfi„

Jurists invalidate the loan of non-fungible goods because sameness

cannot be realized in it. The workshop on indexation organized by

the Islamic Development Bank in Jeddah in 1987 emphasized this

point in the following words:

“In the context of indexation, the scholars attending the

workshop emphasized that the work “mithl” referred to

in the tradition of the Prophet Muammad (s.a.w.s.) on

rib means sameness in kind and quantity according to

the Shar‟ah. Sameness in quantity means sameness in

weight, measure or number, not sameness in value. This

is in adherence to what the Sunnah has indicated and it is

in compliance with what the Ummah has agreed upon

unanimously and what it has been practicing.”38

It is evident from the above that the Shar‟ah disallows any

excess over and above the principal sum in all circumstances. The

additional amount received by the lender through indexation falls

under the purview of the adth which declares that each loan that

entails some monetary benefit is a kind of rib. In fact indexation

is an attempt to provide justification for banking interest. A bank

may claim that the excess paid to the depositor is compensation

for the loss suffered by the latter during the period money

37

Ibn Qudamah, al-Mughni, vol. 4, p.210. 38

Recommendations of workshop on Shariah Position on Indexation

(April 25-28, 1987) Organized by Islamic Development Bank, Jeddah,

1987.


142

remained in custody of bank, and it is not rib. As such, this

device opens the back door for interest.

No doubt constant rise in prices inflicts great harm on the

majority of people. It especially harms people with limited and

fixed incomes and prevents the equitable distribution of wealth in

the society. Inflation is a social evil that adversely affects almost

all the members of the society. Thus, it is not merely an

individual‟s problem. It would be unjust as well as irrational to

hold only one party of the contract, namely the borrower,

responsible for this phenomenon and ask him for compensation.

Such an attitude will only further widen the area of injustice

instead of narrowing it down. It is the obligation of the state to

control prices and adopt measures that would reduce the level of

inflation.

Conclusion

◘ Rib is defined as an increase in the principal, stipulated in

loan transaction.

◘ The Qur‟n has dealt with the issue of rib in Srat al-Rm

(Verse 39), Surat al-Nis‟ (Verse 161), Srat al-„Imran,

(Verse 130) and Srat al-Baqarah (Verses 275-281)

◘ The Adth dealing with rib are of two categories:

♦ Those, which reaffirm the type of rib mentioned in the

Qur‟n.

♦ Those that introduce new forms of rib, i.e., rib al-fal

and rib al-nas‟

◘ Rib al-fal takes place in a homogeneous exchane with

increase from one side in terms of weight or measurement.

◘ Rib al-Nas‟ takes place when articles of the same genera or

different genera are exchanged with deferment from one

party.

◘ The prohibition of rib al-fal and rib al-nas‟ seeks to

forestall the entry of real rib through the back door.


143

◘ The prohibition of rib al-fal is not restricted to six

commodities. It is extendable to commodities, which

resemble the six rabwi commodities with regard to

underlying cause.

◘ The Muslim Jurists have provided different underlying causes

of the prohibition of Rib al-fal and Rib al-Nas‟.

◘ Other forms of rib are: bay„ al-„inah (buy-back agreements),

bay„ al-wafa and a wa Ta‟jjal (discounting for hastening

the payment).

:

Chapter 10

Defect of Consent and its effect on

Contract

As mentioned earlier, consent of the parties forms the basis of a

contract. A contract is considered valid only when it is concluded

by a free consent. A defect of consent leading to nullity of contract

arises when a party gives his consent as a result of mistake, fraud

and duress or coercion. In these circumstances the contract

becomes viodable at the option of the party whose consent was so

obtained.

In the following lines we will discuss mistake, fraud and

coercion and their effect on the validity of contract.

I. Mistake (Khaā ):

Mistake is generally defined as a “belief that is not in accord with

the facts”.1 Mistake conceived by Muslim Jurists relates either to

genus (substance) of the object or its substantial quality. An

example of the former is sale of corundum (yaqūt). If a stone is

sold as being corundum but turns out to be only glass the sale is

void, the reason being the difference between glass and

corundum.2 An example of a mistake in the substantial quality is

where a person purchases a piece of cotton as Egyptian cotton,

1 Sanhūrī, Masādir al-aq, vol.2, p.104.

2 Sarakhasī, al-Mabsū, vol. 13, pp. 12-13.

Defect of Consent and its effect on contract

146

which turns out to be Japanese Cotton.3 Similarly, when a person

purchases a book believing that it is for a particular author and it

turns out to be of another author, he suffers from mistake of

substantial quality.

Effect of contract with mistake

The Muslim jurists are unanimous on the point that a mistake

bearing on genus renders a contract invalid as in the case of

corundum.4 As for mistake that relates to substantial quality, they

hold that it makes contract voidable at the option of the party that

suffered from mistake.5

The distinction between the categories of substantial and non-

substantial has been made mainly with regard to usufruct of the

object – the use to which it is intended to be put; and principally to

the object the contracting party has in mind when he forms the

contract. The quality must, therefore, be material in the mind of

contracting party who is claiming the mistake: this is so whether it

is clearly stated or merely implied. An instance is the buying of an

animal for its meat, which the purchaser later discovers to be

blind. Here, the purchaser cannot avoid the contract, because the

defect of blindness is hardly pertinent to the intended use of the

subject matter of the transaction, that is, to obtain meat.6

If the species of the object is the same, but an appreciable

difference exists between the thing contracted for and the usufruct

of the intended object, then the contract is again voidable by virtue

of mistake as to meaning (substance). For instance a cloth is sold

in a different colour or pattern to the one intended and it is not in

accordance with the purpose of the contract.7

The mistake with regard to substantial quality affects those

contracts only which admit of revocation such as commutative

contracts. It, however, does not affect the contracts, which do not

3 Zaydān, al-Madkhal li dirāsat al-Sharī„ah al-Islamiyyah, p.353.

4 Zayla„ī, Tabyīn al-aqā‟iq, vol.4, p.52.

5 Zuhaylī, al-Fiqh al-Islāmi wa Adillahtuhū, vol. 4, p.217; Madkūr, al-

Madkhal, p.646. 6 Rayner, Islamic Law of Contract, p.180.

7Ibid. p.181.


147

accept revocation such as contract of marriage. Thus, a marriage

contract cannot be revoked on the grounds of absence of required

quality in the wife in the opinion of anafī jurists. Imām Amad,

on the other hand, holds that the husband has right to revoke the

contract if he entered the contract relying on the words of guardian

that she is beautiful but she appeared ugly, or she is virgin but it

appeared that it is her second marriage.8

The mistake concerns non-substantial quality where the

object is of the same substance as that contracted for, and the

representation made by the seller as to its quality is false. For

instance, a seller presents an object as a ruby, which is later found

to be yellow. Here, the sale is valid but not binding on the

purchaser because the mistake is not about the substance of the

object nor is it deemed to have affected the usufruct intended by

the purchaser and the true sale.9

A reference to the Egyptian civil code would be quite

relevant to know as to which mistake affects a contract. This law

determines that a mistake is essential when:

◘ It has bearing on the quality of goods, which the parties have

considered essential or which must be deemed essential,

taking into consideration the circumstances surrounding the

contract and the good faith that should prevail in business

relationship.

◘ It has a bearing on the identity, or on one of the qualities of

the person with whom the contract is entered into, if this

identity or this quality was the principle factor in the

conclusion of the contract”.10

II. Fraud (Tadlīs, Taghrīr, Khilābah):

Fraud is another cause of nullity of an agreement. It occurs when

the conduct of one of the parties is such that without it the other

party would not have contracted.

8 Ibn Qudāmā, al-Mughnī, vol. 6, p.526.

9 Rayner, Islamic Law of contract, p.182

10 Egyptian Civil Code, Article 121 (a) & (b).


148

“Fraud is to induce a person by some deceptive means with a

view to obtain his consent to a contract without which he would

not have consented to the contract”.11

If what is so represented by

words or conduct, be false, that is, not in agreement with the facts

and the person making such representation is aware of it, the

representer is said to be guilty of fraud.

Fraud in Islamic Law includes the misrepresentation of

Western Law, which is defined as “a false statement of fact, made

by one party before or at the time of the contract which induces

the other party to enter into the contract”.12

The act of fraud which

gives innocent party right to revoke the contract, must fulfill

following conditions:

(i) Misrepresentation of a material fact must occur,

(ii) There must be an intent to deceive,

(iii) The innocent party must rely on misrepresentation,

(iv) The innocent party must suffer an injury. Thus, fraud

alone does not cause the annulment of contract.

Traditional Forms of Fraud In Islamic Juristic Literature

The Muslim Jurists have discussed various forms of fraud,

some of them are as follows:

1. Tariyah:

It is to tie the udder of a she-camel or sheep to allow the animal‟s

milk to accumulate in her udder so as to give a false impression to

the intending buyer of a very productive milk-yield. In this respect

the Holy Prophet (s.a.w.s) says:

“Do not tie up the udder of she-camels and sheep. If

any one among you buys a she-camel or sheep

whose udder have been tied up, has option (of

annulment) after milking it; either to retain it or to

return along with a measure of dates (in lieu of the

milk consumed by the purchaser).13

11

The Law of Business contracts, p.102. 12

Zarqā, al-Madkhal al-Fiqhī al-„Āmm, vol. 1, p.374. 13

San„ānī, Subul al-Salām, vol.3, p.26.


149

The act of Tariyah renders the contract voidable at the

option of the buyer, who has suffered lesion from this fraud. This

is the viewpoint of the majority. anafī jurists do not approve

annulment of contract. They allow the defrauded party to claim

undue increase from the seller.14

2. Najāsh or Tanajush (False bidding to raise price):

It is to offer a high price for a commodity without any intention to

buy it, the sole aim being to cheat somebody else who really

wanted to buy the commodity. The Holy Prophet (s.a.w.s) has

prohibited this practice. It is related on the authority of Abū

Hurayrah (r.a.t.a) that the Prophet (s.a.w.s) said: „O people! With a

view to bargaining with the people who come with their animals

laden with commodities for sale, do not go to meet them (outside

the town) and if a person is bargaining with another, do not

interfere by bidding higher.15

Najāsh or Tanājush is a vitiating factor of contract and

renders the contract voidable. Tanājush gives a buyer right to

revoke the contract. This is the viewpoint of majority of Muslim

jurists. Shāfi„ī jurists do not acknowledge this right for the buyer.16

3. Ghabn Fāish:

Ghabn fāish means excessive loss suffered by a party to the

contract as a result of concealment or misrepresentation, or

deception or fraud practiced by the other.

Explanation: Whether the loss is excessive/exorbitant or not is to

be ascertained in view of the market value of the subject matter.

Article 146 of Jordanian Civil code States: “Evaluation concerning

Ghabn Fāish in real estate or other property is a matter for the

estimators alone”.

Ghabn is regarded light (yasīr) if the difference between the

price at which goods were sold and their real market value is so

small that the merchants do not generally take it into account in

14

Ibn bidīn, al-Durr al-Mukhtār, vol.4, p.101. 15

an„ānī, Subul al-Salām, vol. 3, p.18. 16

Zuaylī, al-Fiqh al-Islāmī, vol.4, p.223.


150

their dealings. For instance a book worth Rs. 100/- is sold for Rs.

110, it will not be a Ghabn fāish but if it if sold for Rs. 150/- it

will amount to Ghabn Fāish.

Effects of Ghabn Fāish : anafī viewpoint

The anafī jurists are of the view that excessive loss

suffered by a party alone is not a cause of nullity of contract.

It annuls the contract only when it is caused by a fraud, or

misrepresentation. For example, A sells a watch worth Rs.

300/- for Rs. 600/- to B claiming that market value of such

watch is 700/- rupees. B relying upon the words of A

purchases it for Rs. 600/-. B has suffered from ghabn fāish,

which is a result of fraud. Such ghabn fāish gives him right

to revoke the contract.17 In this respect the Majallah states:

“If there is an excessive lesion without fraud in the sale,

the person who has suffered loss cannot annul the sale.18

There are, however, certain cases in which excessive loss of a

party alone without fraud affects the contracts such as the sale of

waqf property or the property of bayt al-māl or the property of

minor or insane. If the property of these people and institutions is

sold with ghabn fāish, i.e., at a much lower price as compared to

its market value, the sale will be revoked.19

anbalī viewpoint

Ghabn fāish affects the contracts and makes it voidable at the

option of the party which suffered lesion irrespective of the fact

that it is a result of fraud or otherwise.20

Shāfi„ī viewpoint

The Shāfi„ī jurists do not admit the right of revocation for the

buyer. They say that the lesion has occurred because of the

negligence of buyer. Thus, he alone is responsible for the loss.21

17

Ibn bidīn , al-Durr al-Mukhtār, vol.4, p.166. 18

Majallah, Article 356. 19

Ibid, Article 356. 20

Ibn Qudāmā , al-Mughnī, vol. 4, pp.212-218. 21

Shirbīnī, Mughnī al-Mutāj, vol. 2, p.36.


151

4. Talaqqī al-Rukbān

It is another form of fraud and misrepresentation. It is a transaction

where a city-dweller takes advantage of the ignorance of a bedouin

carrying objects of prime and general necessity for sale and cheats

him in the course of the sale. The shrewd city-dweller goes out of

town to meet the bedouin merchant and buys his goods at a cheap

rate, depriving the latter of the opportunity of first surveying the

market to acquaint himself of the current market rate. The Holy

Prophet (s.a.w.s.) said:

"It is forbidden to meet the riders (i.e. the traders)

on the road (for the purpose of taking undue

advantage). Whosoever meets a trader on road and

buys goods from this trader, the vendor has the right

of option and cancellation of such deal when he

arrives at the market".22

5. Inflated Price in Trust Sale:

Another form of fraud is where the seller in a trust sale, sells

goods at an inflated price to buyer. The buyer bases himself on the

price the seller claims to have himself paid in order to suggest to

him a purchase price.23

In trust sale the buyer takes the declaration of the person

selling on trust. The latter‟s declaration may, of course be a lie, for

he may in fact have acquired the article at a much lower price than

the one he claims in order to make a large profit.24

Following are kinds of trust sale:

● Tawliyyah: Resale at cost price.

● Murābaah: Resale with profit Increase.

● Wadīah: Resale with loss.

The fraud in trust sale renders the contract voidable at the

option of buyer. He may either revoke the contract or claim

22

an„ānī, Subul al-Salām,vol. 3, p.21. 23

Zuaylī, al-Fiqh al-Islāmī wa Addillatuhū, vol. 4, pp.710-711. 24

Sanhūrī, Maādir al-aq vol. 2, p.158.


152

reimbursement of undue increase from the seller. Ibnbidīn states

that if the amount of deception is one-fourth of the original, the

buyer has the right to devalue one-fourth of profit from the stated

price.25

Some Jurists suggest that the swindled purchaser should

either cancel the sale completely or retain the goods at stated price.

He does not have the option of devaluation of undue increase.

6. Tadlīs bi al-‘Ayb (Fraud with defect):

Soundness of the object is an implied condition of the contract. It

is not permitted for a person to sell a defective object knowingly.

Whatever may be the cause of diminishing the price amongst

merchants is considered as a defect. A buyer discovering a defect

in the article purchased is at liberty to return it to the seller, unless

he was aware of the defect before hand.

A purchaser is entitled to compensation for a defect in an

article where it has sustained a further blemish in his hands, but he

cannot in this case return it to the seller. He is also entitled to

compensation if the return be rendered impracticable by any

change in the subject.

Coercion (Ikrāh)

Sarakhsī defines coercion in the following words: “By coercion

one designates the action of one person against another

suppressing the consent of this latter person or vitiating his

consent”.26

Zayla„ī defines ikrāh as: “An action directed against a

person, which suppresses his true consent”.27

According to the

Majallah, ikrāh is to compel, without right, a person to do a thing

without his consent or by fear”.28

In modern Law coercion is some element of force, either

physical or economic used to suppress one party‟s consent to

choose whether or not to enter into a particular contract. Under

25

Ibn bidīn , al-Durr al-Mukhtār, vol. 4, p.155. 26

Sarakhsī, al-Mabsūt, vol. 14, p.39. 27

Fakhr al-Dīn Uthmān ibn Alī Zaylaī, ,Tabyīn al-aqāiq,Būlāq:

al-Maktabah al-Kubrā al-Amīriyyah, 1313-1315, vol. 5, p.181. 28

Majallah, Art. 948.


153

such circumstances the contract is voidable at the instance of the

innocent party.29

Conditions of effective coercion

Following are conditions, which give rise to annulment of contract

under coercion:

● Coercion should be legally unjustified.

● It should emanate from a party who has the power to

execute 1 his threat, that is, it must be realistically practicable.

● It must be of such a nature as to intimidate the victim:

that is, it must be of significant and imminent danger.

● The compelled person must believe that if he does not

comply with the compeller's demands, the harm

promised by the compeller will be inflicted upon him.

Kinds of Coercion

Coercion is divided into two kinds:

1. Perfect Coercion (Ikrāh Tāmm): It leads to destruction of life,

or loss of limb or one of them. It annuls the juridical act done

under constraint.

2. Imperfect Coercion (Ikrāh Nāqis): This causes only grief and

pain. It is compulsion, which is by things like a blow or

imprisonment. Imperfect or minor coercion also annuals consent,

but supposes that the contracting party who suffered this coercion

could still exercise his free will. Such would be the case if he was

threatened with blows not liable to cause his death or to cripple

him.30

Effects

The opinion of Jurists is divided on the validity of contract with

coercion. anafī Jurists maintain that contract concluded under

coercion is valid because it has been agreed to by intention of the

party, even though the consent was not freely given. In the opinion

29

Business Law, p.116. 30

Zaydān, al-Madkhal, p.361.


154

of these jurists coercion does not render the contract void but

merely voidable. It gives rise to effects, which are assigned to

voidable contracts. The party whose consent was obtained through

coercion has the right either to ratify it in which case it will

become binding or to annual it.31

Imām Zufar considers such

contract suspended (mawqūf) subject to ratification.

The viewpoint of the Mālikī jurists on the effect of a contract

concluded under coercion is similar to that of the anafī School of

Law. They regard it a valid contract but non-binding. The party,

who has been coerced, has the right to revoke it. The Shāfi„ī and

anbalī jurists regard the act under coercion non-existent since the

essential condition of the juridical act, i.e., the will, is vitiated.32

The Shāfi„īs argue that khiyār and consent are interdependent

concepts and cannot operate independently in the intention to

create legal relations.33

Conclusion

◘ A defect of consent leading to nullity of contract arises when

a party gives his consent as a result of mistake, fraud and

coercion.

◘ Mistake is a belief, which is not in accord with the facts. It

relates either to genus of the object or its substantial quality.

◘ The mistake bearing on genus renders the contract invalid

while the mistake relating to substantial quality makes

contracts voidable.

◘ Fraud is to induce a person by some defective means with a

view to obtain his consent to a contract without which he

would have not consented to the contract.

◘ Traditional forms of fraud include;

● Tariyah

● Najāsh (false bidding to raise price)

● Ghabn Fāish

● Talaqqī al-Rukbān

31

Zarqā, al-Madkhal, vol. 1, p.371. 32

Zaaylī,, al-Fiqh al-Islamī, vol.4, p.216. 33

Ibid.


155

● Inflated price in trust sale

● Tadlīs bi al -'Ayb

◘ Coercion refers to an action of one person against another

suppressing the consent of this latter. It is a cause of nullity of

contract.

Chapter-11

Extrinsic Conditions, and their

Effect on the Contract

The opinion of Muslim Jurists is divided on the extent of freedom

enjoyed by the contracting parties to insert extrinsic or ancillary

conditions in the contract. The reason for emphasising this issue is

that the Lawgiver has assigned certain legal effects to contracts

while the extrinsic conditions remove or modify these effects. For

example the effect of sale is to transfer ownership of the goods

sold and their usufruct to the buyer immediately. Now if a person

sells a car to another on the condition that he (seller) reserves right

to use it for a month. This condition has direct bearing on the

effects of the contract because it delays the effects of the contract.

Is such condition valid? In other words can contracting parties by

their mutual consent agree to a condition, which may change and

modify the effects, which the Sharī„ah accords to contract?

The Jurists have differed among themselves on this point.

One school, which emphasises the supremacy of the autonomy of

the will of contracting parties, holds that the parties are free to

insert any condition. They deem every clause or condition in the

contract valid provided it does not contradict any text of the

Qur‟an and the Sunnah. Another school has adopted a very rigid

and extreme position. This school holds that conditions are

generally not valid except where the text provides for them.

A third school while favouring the position held by the

second school that the contracting parties do not have the right to


158

modify the effects of contracts, allow for some conditions, which

either confirm the effects or are normally recognised, in the

commercial usage. Unlike the first school, this school is rather

restrictive which does not accept conditions except those, which

conform to the principles laid down by this school for

admissibility of conditions. Now we discuss these viewpoints and

their arguments in detail.

Viewpoint of āhirī Jurists

āhiī jurists impose total ban on ancillary conditions except the

conditions, which are approved by the text. To these jurists basic

presumption of law is that all contracts and conditions are

prohibited except that which is established by the text or ijmā„

(consensus of opinion).1

Their Arguments

◘ Holy Prophet (s.a.w.a) said, “He who performs an act we

have not ordered him, his act is null and void”.2

◘ Holy Prophet (s.a.w.a) said: “A loan made at the same time as

a sale is illicit. Two conditions in a sale are not allowed nor is

profit without corresponding liability and sale of what is not

possible”3

Thus, the āhiī Jurists invalidate all such conditions, which

do not figure in the Qur„ān and the Sunnah, or they introduce

modification to the effects of a juridical act.

anbalī Viewpoint

The anbalī viewpoint represents a very liberal approach as it

acknowledges complete autonomy of will in contracts and

transactions.4 To anbalī jurists general rule with regard to

contracts and conditions is permissibly unless a text from the

1Ibn azm, al-Muallā, vol. 2, p. 412.

2 Ikām fī Uūl al-Akām, vol. 5, p.32; Taysīr al-Wuūl „ilā Jāmi‟ al-

Uūl. vol. 1, p.63. 3 Nayl al-Awār, vol. 5, p.190.

4 For anbalī Viewpoint see Ibn Taymiyyah, Nariyyat al-„Aqd, p.15,16;

and Fatāwā „ibn Taymiyyah vol. 3, p.323.

Extrinsic Conditions, and their Effect on the Contract

159

Qur„ān or the Sunnah or a valid consensus makes them invalid.

They do not demand a text providing for permissibility, as it is

demanded by the āhiī Scholars. Thus, to combine two contracts

in one or to sell with the condition of loan from buyer are not valid

conditions because the text has explicitly prohibited it. Apart from

it all other conditions are permissible. It is, therefore, permissible

for a woman to stipulate in marriage contract that her husband will

not compel her to leave her hometown. It is also permissible to

stipulate that he will not marry another woman. Such condition

would be binding upon husband and give her right to revoke

contract if he does not honour it. They also allow the seller of a

house to stay in the house sold for some specified time as a part of

contractual condition.

Their Arguments

◘ The Qur„ān says: “O you who believe: fulfill your

contracts”.5 It also says: “And fulfil every promise, because

every promise will be inquired into”.6 In these verses Allah

has ordered believers to fulfill their obligations and

undertakings towards each other and prohibited from

violating them. This includes conditions the parties insert in

the contract by their free will.

◘ The Holy Prophet (s.a.w.s) said: “Muslims are bound by their

stipulations unless it be a condition which turns arām into

alāl or alāl into arām.”7

This adīth allows inserting conditions in contract, and the

parties are bound to abide by it. The only limitation imposed

on the parties is that they should not insert a condition, which

is inconsistent with the injunctions of Islam.

◘ As regards the adīth which declares all such conditions void,

which do not exist in the Book of God, these jurists, argue

that prohibition contained in it is applicable to those

conditions only which are against the Book of Allah,

5 Qur„ān, 5:1.

6 Qur„ān, 17 :34.

7 Shawkānī,Nayl al-Awtār vol. 5, p.255.


160

i.e.,against its injunctions. The meaning of adīth in the light

of this interpretation would be that if someone stipulated for a

thing which is not recommend in His book, this act on his

part will be regarded null and void.

◘ The anbalīs differentiate between „ibādāt and mu‟āmlāt.

„ibādāt are established by the explicit injunctions of the

Sharī„ah. As for Mu‟āmlāt (transactions) the governing

principle is permissibility and absence of prohibition.8

Viewpoint of anafī, Shāfi„ī and Mālikī Jurists

The jurists of these schools divide the condition into three kinds.9

(a) Valid Conditions: Valid conditions are further divided into

four categories:10

(i) Conditions, which confirm the effects, attributed to

juridical act by the Sharī„ah. Such conditions strengthen

the purpose of contract. The condition, for example, to

sell on the condition that the seller will not hand over

good to buyer unless he pays the price is a valid

condition because it stresses and confirms the effects of

contract and realizes its objective.

(ii) Condition, which is admitted explicitly by the Sharī'ah,

such as the option of stipulation, reserved for a party to

revoke or ratify a contract within three days. Such

condition is valid because the Sharī„ah has sanctioned

the option of stipulation (khiyār al-shar) and option of

inspection (khiyar al-ru‟yah).

(iii) A condition, which is intimately, connected with the

contract such a pledge of security in a contract of surety.

8 Ibn Taymiyyah, Fatāwa , vol. 29, pp. 16-18; Nariyyat al-„Aqd, p. 314.

9 Madkūr, al-Madkhal Li al- Fiqh al-Islāmī, p. 664. See for details:

Sarakhsī, al-Mabsū vol. 13, pp. 14-28; Ibn al-Humām, Fath al-Qadīr,

vol. 5, p.314; Ibn Ābidīn, Radd al-Mukhtar, vol. 4, p.126 10

See „Ādil Muafā Basyūni, Al-Tashrī al-Islāmī wa al-Nuum al-

Qanūniyyah al-Wa iyyah , p.152,153


161

(iv) The anafī jurists also allow a condition, which has

been established by custom. A modern example of such

condition is to purchase air-conditioner with the

condition that the company will be responsible for its

repair for two years.

b) Irregular Condition:

A condition is regarded irregular if:

◘ it is repugnant to requisites of the contract;

◘ it is irreconcilable with the purpose and effects of

contract;

◘ it is not allowed by the Sharī„ah;

◘ it is not allowed by custom and usage;and

◘ it gives undue advantage to one of the contracting parties

The ukm of such condition is that it renders the entire

juridical act invalid. It especially affects commutative contracts.

The condition by an owner of a house to stay in the house sold for

one year is an irregular condition, which effects whole contract

and renders it invalid. But it does not affect gratuitous contracts.

The contract containing such condition remains valid, the

condition alone is regarded null and void. The reason for the

difference between commutative contracts and gratuitous contracts

is that in the former case the condition disturbs balance of benefits

involved in the contract. It gives one of the parties an advantage

that is not balanced by a corresponding gain or benefit of the

other. On the other hand, gratuitous contracts do not involve

bilateral benefits, so no question of the disruption of equilibrium

arises. An irregular condition in gratuitous contract, therefore,

does not nullify whole juridical act.

c) Void Conditions:

It is a condition, which directly infringes any rule of the Sharī„ah,

or inflicts harm on one of the two contracting parties or derogates

from completion of contract, such as the condition imposed by the

seller that the purchaser will not sell it further to any party. The

condition, which brings benefit for one of the two contracting


162

parties and disturbs the equivalence of benefits, is, in fact, a kind

of ribā and is, thus, considered null and void.11

The ukm of a contract with a void condition is that the

condition is severable from the contract, it does not nullify the

whole contract.The condition alone will be regarded null and void.

Meaning of two conditions in sale and two transactions in one:

The tradition prohibiting the two conditions and two

transactions referred to above has been interpreted by the

jurists in a number of ways. Sarakhsī, a anafī jurist,

commenting on the tradition says:

“The description of the two conditions in sale is to say (So

much for cash and so much for delay)The contract here is

fāsid because the buyer did not specify the price at which he

has agreed to purchase goods. Thus, the cause of irregularity

of this contract is indeterminacy with regard to price of

goods.”12

In regard to the legal status of two transactions in one Imam

Shāfi‟ī is reported to have stated his opinion in the following

words:

It carries two interpretations: first, I sold you this commodity

for two thousand on credit and one thousand in cash and sale

is binding and irrevocable at one of the two prices. The sale is

void because contract is contingent upon an unspecified thing.

Second: I sell you my house on the condition that you sell

your horse to me. This is invalid because it involves

exploitation of buyer who is compelled to purchase a thing,

which he does not want. It also contains gharar because the

seller does not know whether the second sale will take place or

not.13

This sale is invalid in the anbalī School as well because of

the element of gharar. 14

11

Zaydān, al-Madkhal, p.398. 12

Sarakhsī, al-Mabsū. vol. 14, p.36 13

Shīrāzī , al-Muhadhdhab, vol. 1, p.267 14

Ibn Qudāmā , al-Mughnī, vol. 4, p.234.


163

Conclusion

◘ The opinion of Muslim jurists is divided on the legality of

extrinsic conditions in a contract.

◘ The anbalī Jurists emphasise the supremacy of the will of

contracting parties and allow every condition and stipulation

in a contract as long as it does not contradict any text from

the Qur'ān or the Sunnah.

◘ The āhirī Jurists impose total ban on extrinsic conditions.

They accept only those conditions, which are approved by the

explicit texts of the Qur'ān and the Sunnah.

◘ The anafī, Shāfi'ī and Mālikī Jurists divide conditions into

valid, irregular and void.

◘ Valid conditions are those, which confirm the effects,

attributed to juridical act by the Sharī„ah and which are

admitted explicitly by it, such as the option of stipulation.

◘ A condition is regarded irregular if:

● It is repugnant to requisites of the contract

● It is irreconcilable with the purpose and effects of

contract

● It is not allowed by the Sharī„ah

● It is not allowed by custom and usage

● And it gives undue advantage to one of the contracting

parties

◘ Void Condition is a condition, which directly infringes

any rule of the Sharī„ah, or inflicts harm on one of the

two contracting parties or derogates from completion of

contract.

Chapter 12

Islamic Law of Options (Khayārāt)

Muslim jurists have suggested number of devices to safeguard

contracting parties against hasty undertaking. These devices give a

party who signed contract unwisely and then regretted his haste on

seeing some lesion or fraud, an opportunity to ponder over his

transaction and revoke the contract. These devices are called

Khayārāt (plural of word Khiyār), i.e., options in Islamic Law.

They have been designed to maintain balance in transactions and

to protect a weaker party from being harmed. They constitute

preventive measure against error, defect in goods, want of

knowledge concerning quality of things, lack of desired quality.

The meaning of Khiyār is that a contractor has right to ratify the

contract or to annual within the period of option.

Kinds of Options

The options allowed in Islamic Law are as under:

◘ Khiyār al-Shar (Option of condition)

◘ Khiyār al-Ta„yīn (Option of determination)

◘ Khiyār al-„Āyb (Option of defect)

◘ Khiyār al-Ru‟yah (Option of inspection)

◘ Khiyār al-Waf (Option of Description) 1

1 Zuaylī, al-Fiqh al-Islāmī wa Adillatuhū, vol. 4, p.250

Islamic Law of Options (Khayrt)

166

These options are established either through the rule of the

Sharī„ah or the agreement between the parties. Options of defect

and option of inspection have been granted by the Sharī„ah while

the option of stipulation, option of determination, and option of

description are established by agreement.2 Some modern authors

class option of condition under first category.

1) Khiyār al-Shar: (Option of condition):

Khiyār al-Shar is that option through which one party or both of

them stipulate for themselves or for someone else the right to

revoke the contract within a determined period.3 For instance, the

purchaser says to the seller “I purchased this thing from you but I

have the right to return it within three days”. As soon as the period

is over the right to revoke, derived through this option, lapses. The

result of this option is that contract which is binding initially

becomes non-binding with the stipulation of this option.

Legality of khiyār al-shar

It is reported that the Holy Prophet (s.a.w.s) granted this option to

ibbān ibn Munzir who complained that he was defrauded each

time he made a purchase. He was directed by the Holy Prophet

(s.a.w.s) to say whenever he made a purchase “No Cheating, and I

reserve option for three days.4 The purpose of option is to give

chance to a person who suffered some loss in transaction to revoke

contract within stipulated time. The option is stipulated normally

at the time of the contract. According to Imām Shāfi‟ī and Imām

Amad it should be stipulated at the time of contract. Other jurists

allow it even after the contract has been concluded, as long as the

parties are in the same session of contract.

Contract in which khiyār al -shar is permitted

Khiyār al shar is permitted in those contracts, which accept

revocation like sale, hire, muzāra‟ah (crop sharing). It cannot be

2 assn al-Madkhal, p. 455.

3 Zuaylī, al-Fiqh al Islāmī wa Adillatuhū, vol. 4, p.254; See also

Zaydān, al-Madkhal, p.377. 4Shawkānī, Nayl al-Awār vol. 5, p.182.


167

167

stipulated in those contracts, which do not accept revocation such

as divorce, manumission etc.

As regard those contracts, which are revocable by nature like

agency, and partnership, the stipulation of khiyār al-shar would

be futile as they can be revoked at the will of either party. It is also

not permitted in contracts of salam (sale of future goods)5 and arf

(money exchange) .

For whom the option is stipulated

The option can be stipulated by one of the parties for himself or

for a third party. The third party then becomes the wakīl of the

party for purpose of exercising the option but it does not prevent

the party from exercising the option himself.

Maximum period of khiyār al -shar

There is agreement amongst the jurists that khiyār al- shar can be

stipulated for a period of three days or less. This agreement is

based on the tradition quoted above.

The jurists disagree as regards any period over three days.

Imām Abū Yūsuf and Moammad and the anbalīs are of the

opinion that it is permitted to lay down a period of more than three

days without any restriction of the maximum period.6 Imām Abū

anīfah and Shāfi‟ī do not allow it for more than three days. The

reason is that qiyās, i.e. general rule prohibits the stipulation of

khiyār altogether, which is then permitted as an exception from the

tradition. The necessity has been acknowledged as three days by

the tradition and cannot, therefore, be extended beyond such

period.7 According to the Mālikīs the period of khiyār varies from

case to case. Thus, it may be one day when a piece of cloth has

been purchased and may be one or two months when a house has

been purchased.8

5 Abū Zahrah, al-Milkiyyah wa Nazariyyat al-„Aqd p. 393.

6 Ibn Qudāma, al-Mughnī vol. 3, p.585,Kāsānī, Badā„i‟ al-anā„ī‟ vol. 5,

p.174 . 7 Shirbīnī, Muhgnī al-Mutāj, vol. 2, p. 47; Kāsānī, Badā‟i„ al-Sanā‟i„,

vol. 5, p.174. 8 Ibn Rushd, Bidāyah al-Mujtahid, vol. 2, p.208.


168

Effect of the contract with khiyār al-shar

The difference between the jurists as regards the ukm of the

contract can be reduced to two opinions.

First Opinion: The effects do not come into operation during the

period of the option. The contract remains suspended (mawqūf)

during the period of the option or till such option is exercised.

Thus right in the property is not transferred to one in whose favour

the option has been stipulated.

Second Option: The effects come into operation but the contract

is now not binding or ghayr lāzim and can be revoked during the

period of the option by the one in whose favour the option has

been stipulated.

The option may be exercised expressly or impliedly.

Revocation does not require the ukm of the court to become

effective. Ratification may also be expressed or implied.9

Termination of the Option

The option ceases to be applicable in the following cases:

i) Death of one in whose favour the option was operating: In

such case the option becomes extinct and the contract is now

binding as regards the representative of the deceased. The exercise

of the option is a personal right and cannot pass to the heirs.

According to the Mālikīs and Shāfi‟īs on the other hand, it is right

which can be inherited and the heirs can exercise the option within

the stipulated period.

ii) Termination of the Period: On termination of the period the

contract becomes binding and irrevocable.

iii) Destruction of the subject matter: In this case also the

contract becomes binding.

2) Khiyār al-a'yīn (Option of designation):

Option of designation is the right of buyer to choose, designate or

determine within a pre-stated time one object out of two or more

9assān ,al-Madkhal, pp.456,457.


169

169

which are proposed to him. The basic rule is that the subject

matter must be known, i.e., ascertained at the time of contract.

There is, however, a genuine need of the people to buy an

unascertained thing out of a number of ascertained things with a

right to ascertain the exact thing later. For example one buying a

car out of three vehicles offered for fixed price, gets opportunity

through this option to have cars examined by a specialist and

choose one of them. The reserving of the right to ascertain the

bought item later is known as the Khiyār al- a„yīn or the option of

ascertainment.

This option is imposed by the buyer only and it results in

making a binding contract non-binding in favour of the buyer.

Effects of the Option

The general rule is that the goods being purchased must be

ascertained at the time of the contract. On the basis of this rule the

Shāfi‟īs and the anbalīs do not permit the stipulation of the

option of ascertainment. The option if stipulated would make the

contract bātil. The anafīs and Mālikīs allow this option because

one may be in need of consulting other or for pondering over the

purchase and at the same time he does not wish to lose the bargain

also. It may also happen that he is the agent of someone and wants

to refer the matter to his principal.10

The option is allowed as an exception through „istisān

(juristic preference) against qiyās (general rule) and its operation

is very narrow being permitted mainly in the contract of sale.

Again it is permitted to the buyer only as the necessity on which it

is based cannot be established for the seller according to the

majority of the anafīs.

Duration of Khiyār al-a‘yīn

Those who maintain that khiyār al-a„yīn is a condition, which

operates within khiyār al-shar, or is a kind of khiyār al-shar

grant the same period as stipulated for the khiyār al-shar., Thus

the maximum period is three days according to Imām Abū anīfah

10

See Kāsānī, Badā‟i„ al-Sanā‟i„, vol. 5, P.158; Dasūqī „Alā al-

Shar al-Kabīr, vol. 3, p. 91.


170

and unlimited according to Imām Abū Yusuf and Muammad.

Another opinion within the anafī School is that khiyār al-a„yīn

is independent of khiyār al-shar and thus has no fixed period.11

Conditions of Khiyār al-a‘yīn

◘ The number of unascertained items should not exceed three

i.e., those out of which one has to be ascertained. The reason

is that necessity does not go beyond three.

◘ There should be a difference in value between the three items

and the price of each must be known.

◘ The period of the option should be determined within the

confines of the khiyār al-shar (majority opinion).12

Effects of the Khiyār al-a‘yīn

A contract with this option is binding for the seller and non-

binding for the buyer. As the khiyār al-a„yīn operates within

the khiyār al- shar, it is possible for the buyer to revoke the

purchase in all three items.

On the termination of the period the contract becomes

binding and it is now necessary for the buyer to ascertain one of

them. This is the opinion of the anafīs. The Mālikīs maintain that

on termination of the period, the sale is void in all items. In other

words the option must be exercised within the period otherwise the

contract is void. Some of the anafīs who maintain that khiyār al

-a„yīn in not a part of khiyār al-shar are of the opinion that the

contract cannot be revoked in all items and one item must be

ascertained.

Factors terminating the option

◘ Exercise of the option whether express or implied.

◘ Destruction of one of the items.

a) In possession of the buyer: The goods destroyed become

ascertained and the buyer is liable for the price.

11

Kāsānī, Badā‟i„ al-anā‟i„, op. cit. vol. 5, p. 158. 12

Madkūr, al-Madkhal li al-Fiqh al-Islāmī, p.680; See also Zaydān,al-

Madkhal li Dirāsāt al-Sharī„ah, p.381.


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171

b) In possession of the seller: Buyer has a choice to accept

what remains or to call off the contract.

◘ Death of one who possessed the option. The contract

becomes non-binding for the heirs and right of revocation

lapses. The heirs must ascertain one item.

3) Khiyār al -Ru’yah (Option of Examination):

Option of examination is the right accorded to a person buying or

brings anything not yet present at the moment of the signature of

the contract to confirm or cancel the said contract after inspecting

the object.

Knowledge of the subject matter at the time of contract is an

essential condition. Such knowledge is possible through an

examination of the subject at the time of the contract or by

description in a manner, which removes all kinds of jahālah (want

of knowledge).

Some of the jurists consider examination at the time of

contract essential and any condition permitting examination later

would make the contract bāil. The anafīs allow the sale of

things, which have not been seen or examined at the time of the

contract and grant an option to the buyer to examine the goods

later. If he finds the goods or property to his liking, he may accept

them and in the alternate he may revoke the contract. This is

known as the option of examination or khiyār al- ru‟yah.

Opinions of Fuqahā regarding option of examination:

There are two opinions relating to the khiyār al- ru'yah which are

summarised below:

Option 1. The Shāfi‟īs are of the view that the contract in which

the subject matter has not been examined is not valid.13

Thus they

reject the validity of khiyār al-ru'yah. They argue on the basis of

the tradition, “ do not sell what you do not have”.14

13

Shīrāzī, al-Muhadhdhab vol. 1, p. 263. 14

Shawkānī, Nayl al-Awār,vol.5,p.164.


172

The Mālikīs agree with the Shāfi‟īs in general but when

examination at the time of the contract becomes impossible or is

likely to result in grave loss (e.g. exposure of a very expensive

piece of cloth time and again for buyers) they allow sale by minute

description. In such case the buyer may exercise option of

inspection and reject the object if it does not conform to

description.15

The anbalīs maintain that sale must be through examination

at the time of the contract and if this is difficult, sale may be by

description. Thus they reject khiyār al -ru'yah also.

Option 2

The anafīs differing with the other schools maintain that the

contract in which the buyer has not seen the goods is a contract

which is valid and enforceable but is non-binding and the buyer

has the option to revoke it upon examination. This is known as the

khiyār al -ru'yah. It is very important to note here that through this

option the buyer can reject the goods upon examination even if the

goods were described minutely and are found to conform to the

description upon examination. This option can be stipulated for the

buyer only.

The anafīs argue that the tradition, “Do not sell what you do

not possess” applies to one who does not own the goods and has

not capacity to deliver. It does not apply to the goods, which

cannot be seen at the time of the contract. They also quote in

support a tradition to the effect that: “He who buys a thing which

he has not seen has an option upon seeing it”16

They also base its legality on a judgement against arat

„Uthmān (r.a.t.a.) who had sold land to arat alah. Either had

not seen the land. Some one said to alah “you have made a bad

bargain”. He replied”, I have not seen the land and thus have an

option”. Jubayr ibn Muam arbitrated the dispute and allowed

alah right of option. The course taken by this litigation without

15

Ibn Rushd, Bidāyat al-Mujtahid vol. 2, p. 155. 16

Madkūr, al-Madkhal li al- Fiqh al-Islāmī, p.686.


173

173

any objection on the part of the companions is said to have

established right of option of examination for buyer. 17

Conditions related to the option

(i) The buyer must not have seen the goods, which are the

subject matter of contract.

(ii) The contract must be in property, which is specified, and not

in that which is sold by description. Things specified are like

houses, land horses, etc. which possess their own

individuality.

Effects of the option of examination

The option makes the contract non-binding. The seller cannot

revoke such a contract, which is binding for him even if he has not

seen his own property. The property passes to the buyer and the

contract is non-binding.

Facts terminating the option

◘ The option ends with the examination of the subject matter.

There is no fixed period for the option, however, once the

goods have been examined, the option is terminated.

◘ The option lapses if the subject matter is destroyed.

The contract becomes irrevocable upon destruction

of the subject matter.

◘ The death of the buyer makes the contract binding

for the heirs of the buyer.

◘ If the buyer examines the property and disposes it

off, the contract becomes irrevocable.

4). Khiyār al-‘ayb (option of defect)

It is a right given to a purchaser in a sale to cancel the contract if

he discovers that the object acquired has in it some defect

diminishing its value.18

The option has been imposed by the law

itself and the parties do not have to stipulate it. It is thus a

17

Abū Zahrā , al-Milkiyyah wa Nazariyyat al-„Aqd p.398. 18

Kāsānī, Badā„i al-anā„ī vol, 5,p. 247.


174

necessary condition of the contract. The goods are liable to be

rejected if undeclared defects are discovered. When the seller

specifically states that he is not responsible for any defects then

the buyer acts at his own risk and goods cannot be rejected.

This option is based on the traditions:

♦ “He who defrauds another is not from amongst us”.19

♦ “It is not permitted for seller to sell things which are

defective unless he points it out to him”20

The option operates in favour of one buying or hiring

property. The option is valid in case of goods, which need to be

specified like a house, land or any room, which has its own

individuality.

Conditions for exercising option of defect:

◘ The defect should be such which causes decrease in the sale

of the property. The defect may be obvious or hidden.

◘ The defect should have existed prior to the contract. A defect

appearing later after delivery is not valid for purpose of the

option.

◘ The defect should continue after delivering till the time of the

exercise of the option. If the defect disappears before this,

there is no option.

◘ The buyer should have no knowledge of the defect at the time

of the contract or at the time of delivering.

◘ There should not be any agreement of non-guarantee. If the

purchaser who by an agreement of non-guarantee expressly

exonerated the seller of any responsibility for defect in the

article sold, then he cannot in future avail himself of the

option of defect.

Effects of Option of Defect

19

Bukhārī, aī ,quoted from Jam‟ al-Fawā„id. adīth No. 4668. 20

Shawkānī, Nayl al-Awār, vol. 5, p. 224.


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175

The contract with the option of defect is revocable. The purchaser

of an object with defect has the choice to confirm the sale or to

cancel it. This is the majority opinion. The Mālikī jurists

distinguish between the minor (yasīr) defect and major (fāish)

defect and propose that if the defect is minor, the buyer may

confirm the sale while being returned part of the price paid in

proportion to the extent of the defect. In case the defect is major,

he has the choice either to cancel it or confirm it without

compensatory restitution. The anbalī jurists hold that the buyer

of an object with defect whether minor or major, may confirm the

sale while being paid the difference between the price of the

article in perfect condition and its price with defect.

Factors terminating the option

(i) Acceptance of object with defect by the buyer

(ii) Destruction of the object in the hands of buyer.

The death of buyer does not terminate the option. The right in such

case inherited by the heirs.

Conclusion

◙ Islamic law of option provides a device to safeguard

contracting parties against hasty undertakings.

◙ The options allowed in Islamic law are:

♦ Option of condition

♦ Option of determination

♦ Option of defect

♦ Option of inspection

♦ Option of description

◙ The option of inspection and option of defect are granted by

the Sharī'ah whereas the options of condition, determination

and description are established by the mutual agreement.

Chapter -13

Classification of Contracts

The modern Muslim jurists have classified contracts from various

perspectives to facilitate understanding. One classification is

according to their function and purpose and the other is according

to their time of completion.

A- Classification according to function of contract:

Contracts from this perspective are divided into the

following seven categories:

1. Tamlīkāt (contract for alienation of property): The

contract falling under this category aims to make a person

owner of a thing or its usufructs. They may be for

consideration and without consideration. In the former case,

they are designated as „uqūd al-mu‟āwaāt (commutative

contracts) such as sale, hiring, arf (money changing), ul

(composition), „istinā (manufacturing contract), muzara‟ah

(cultivation) and musāqāh , in the latter case, they are called

udūd al-tabarru‟āt (gratuitous contracts) such as gift,

bequest, waqf (religious endowment) „āriyah (commodate

loans) and awālah (assignment of debt). Sometimes a

contract begins with donation and ends up with exchange.

Thus at the final stages it becomes a commutative contract

such as contract of loan and surety by the orders of debtor.

2. Isqāāt (contracts extinguishing rights):

The object of such acts and contracts is to extinguish established

rights. They may be with consideration and without consideration.

Classification of Contract

178

The examples of first kind are divorce without consideration,

manumission, remission of debt, withdrawal of the right of

shufa„ah (pre-emption), whereas the divorce for consideration and

accepting blood money instead of qiā are the examples of

second kind.

3. 'Ilāqāt and Tafwīh (contracts of authorisation): The purpose

of these contracts is to delegate power and authority to a party to

carry out a transaction which was not permissible for him before

this delegation, like agency, permission to a person placed under

interdiction person for dispositions.

4. Taqyīdāt (contracts restrictive of the rights of others): The

principle feature of these contracts is to restrict the liberty of a

person and prevent him from the right of disposal and use of

property such as preventing insane, lunatic, minor and insolvent

person from dispositions.

5. Tawthīqāt(contracts of guarantee): The purpose of such

contract is to secure the debt of creditors. The contracts which

serve this purpose are: kafālah (suretyship), āwālah (assignment

of debt) and rahn (pledge).

6. Ishtirāk (partnership): The purpose of contracts falling in this

category is to share the profit of a business such as mushārakah,

mudhārabah, muzāra„ah.

7. Uqūd al-ifz (deposits and bailments): These contracts aim

at safeguarding the property of a person like deposit and

bailment.1

A contemporary scholar Muammad Salām Madkūr has

treated uqūd al-muawaāt and „uqūd al-tabarruāt separately

instead of classing them under tamlīkāt.2 The contracts according

to his scheme are as follows:

I-'Uqūd al-Mu‟āwaāt (commutative contracts):

1 Zuaylī, al-Fiqh al-Islāmī wa adillatuhū, vol. 4, pp. 244,245.Zaydān,

al-Madkhal, pp. 375,376. 2 Madkūr, al-Madkhal, pp. 595,596.


179

179

These contracts contain exchange of counter values from both the

contracting parties such as contract of sale, and iājrah (hiring).

Uqūd al- mu‟āwaat includes the following contracts:

◙ Contract of Sale: Contracts of sale are further classified as

under:

a) Classification according to object:

♦ Muqāyaah (barter)

♦ arf (money changing)

♦ Salam (sale with immediate payment and deferred

delivery)

♦ Bay„ Mu‟ajjal (deferred payment sale)

♦ Bay„ Mulaq (sale of object for money)

b) Classification according to price:

♦ Tawliyah (resale at cost price)

♦ Murābah (resale at cost price plus some profit)

♦ Wadī‟ah (resale with loss)

♦ Musāwamah (resale with agreement that no reference be

made to the original cost price).

◙ Contract of Hiring: This may be divided into:

♦ Ijārat al-Ashkhās (rendering services)

♦ Ijārat al-Ashyā‟ (letting things)

◙ Loan Contract

◙ Istinā (contract of manufacturing)

II- Uqūd al-Tabarrūāt (gratuitous contracts): The main feature of

these contracts is donation of property. The donor transfers

ownership of that property to a party without consideration.

Following contracts fall under this category.

♦ Hibah (gift)

♦ Waiyyah (bequest)

♦ Waqf (endowment)

♦ Kafālāh (guarantee)

♦ „Āriyah (commodate loan)

III. 'Uqūd al-Isqaāt (relinquishment of rights) such as:


180

♦ Remission of debt

♦ Relinquishment of right of pre-emption.

IV. 'Uqūd al-Ilāqāt (authorization) such as:

♦ Wakālah (agency)

♦ ‟Īā‟ (making a person guardian)

♦ Removal of interdiction from discerning minor.

♦ Manumission

V. „Uqūd al-Taqyīdāt (contracts restrictive of the rights of

others) such as:

♦ Dismissal of agent.

♦ Dismissal of guardian and superintendent of waqf from

their offices.

♦ Interdiction of minor from disposition

♦ Interdiction of insane, lunatic, insolvent etc.

VI. „Uqūd al-Sharikāt (contracts of partnership.

They include:

♦ Sharikat al-mufāwaah

♦ Sharikat al-inān

♦ Sharikat al-wujūh

♦ Sharikat al-amāl

♦ Sharikat al-muarabah

VII.„Uqūd al-amanāt (contracts of suretyship)

They include:

♦ Kafālah

♦ awālah

♦ Rahn

V. Uqūd al-Istifazāt (contract of depositing)

Sir Abdur Rahim has rather followed legalistic approach and

classified Islamic contracts as follows.3

1. Alienation of property for exchange, namely

3 Sir Abdur Rahim „Muhammadan Jurisprudence, Lahore: All Pakistan

Legal Decisions, 1977,pp.227, 228.


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181

♦ sale

♦ without exchange, namely ribā or simple gift

♦ by way of dedication, namely waqf.

♦ to create succession, namely bequest.

2. Alienation of Usufruct

♦ In exchange for property namely ijārah which includes

letting things movable and immovable for hire, contracts

for rendering services such as for carriage of goods, safe

custody of property, domestic and professional services.

♦ Not being in exchange of property, for example;

commodate loans and deposits.

3. Contracts for securing the discharge of an obligation, namely;

pledge and suretyship.

4. Contracts for representation namely; agency and

partnership.

B. Classification of contracts with regard to time of

completion:

Having regard to time of completion, the Muslim jurists have

divided contracts in to the following three kinds.4

1. Al-‘Aqd al-Munjaz (Contract Immediately Enforceable):

It is a contract, which unconditionally becomes complete after the

offer is accepted and its consequences in the form of obligation

ensue immediately. Thus a contract will be regarded „aqd munjaz

if:

♦ It is free from any option reserved for a party like option

of the buyer to revoke contract within three days.

♦ It does not depend upon ratification by the party

concerned. For example, the contract concluded by a

discerning minor or the one placed under interdiction due

to idiocy and lunacy, is suspended till it is ratified by their

respective guardians. Similarly the contract made by a

4 Madkūr, al-Madkhal , p. 611.


182

fuūlī (unauthorized agent) is also a suspended contract,

which is enforceable only on ratification by the principal.

The sale of mortgaged property also remains suspended

till the mortgagee forgoes his claim upon the property and

ratifies the contract.

♦ It is not contingent upon a condition or happening of an

uncertain event in future i.e. I sell you my house if A sold

his house to me. As general principle, Muslim jurists hold

that a valid contract should give rise to the effects

assigned to it by the Lawgiver immediately. It is for this

reason that majority of jurists do not admit of suspended

contracts because such contracts cause delay in the

enforcement of contracts.5 Ibn al-Qayyim and Ibn

Taymiyyah, however, approve contingent contracts and

regard them valid.6

2. Al‘Aqd al-Muāf li al-Mustaqbal. (Contract Effective

From Future Date):

Such contract is not valid according to majority of the jurists since

they hold that the effects should ensue immediately without any

delay.7 They, however, allow the contracts made on usufructs to

be effective from future date like the contract of leasing,

manufacturing because a person does not own usufructs

immediately as he does in the case of sale contract, but he owns

them gradually, so the future time is considered in such contracts.

kafālah (suretyship) and awālah (assignment of debt) are also

considered to be the contracts of above-mentioned category. A

kafīl (surety) is not required to pay debt immediately when the

contract is concluded. So it is valid if the surety were to say to the

creditor “if your debtor did not pay off his debt to you by the

beginning of next month, then I will make this payment”.

Similarly the agency, divorce and waqf are valid from future date.

Contract of bequest also by its nature admits of delay, as it cannot

5 See Ibn Humām, Fat al-Qadīr Vol. 5, P. 195; Nawawī, al-Majmū‟ vol.

9, p. 340; ajawaī, al‟Iqnā„ , vol. 3, P. 157; Ibn Qudāmā, al-Mughnī, vol.

6, p. 599. 6 Ibn al-Qayyim, I'lām al-Muwaqqi„īn vol. 3, p.237.

7 Darīr, al-Gharar fi al-„Uqūd, pp. 4-5.


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183

be enforced in the life of legator. The contract of ijāra partakes the

attributes of both the „aqd munjaz and gayr munjaz.

The contract of sale in the opinion of all the jurists is

immediately enforceable contract, thus it is not permissible to say

“I sell you this house of mine in the beginning of next year”. The

jurists see in this postponement and delay an element of gharar

(uncertainty). It is like a contract which is contingent upon an

uncertain event which the parties do not know whether it will

occur or not or it is dependent upon condition about which the

parties do not know whether it will be fulfilled or not.8

But the fact is that there is substantial difference between

„aqd muāf (effective from future date) and aqd mu„allaq

(contingent upon event or condition) in that in the former case the

parties clearly know the time of performance of obligation

whereas in latter case they do not know as to when it will be

performed and whether or not it will be performed. Commenting

on the viewpoint of jurists, Dr. Muammad iddīq observes: “

Indeed the only gharar in a future contract lies in the possible

lapse of interest of either party which may affect his consent when

the time set therein comes. If someone buys something by „aqd

muāf and his circumstances change or the market changes

bringing its price down at the time set for fulfillment of contract,

he will undoubtedly be averse to its fulfillment and will regret

entering into it. Indeed the object may itself change and the two

parties may dispute over it”.9

It is pertinent to note that Ibn al-Qayyyim and Ibn Taymiyyah

do not subscribe to majority's viewpoint. They maintain that „aqd

muāf is permissible, without distinction between sale contract

and leasing contract.

3. Al-‘Aqd al-Mu‘allaq (contingent contract):

It is a contract, which is contingent upon happening of an

uncertain event. Such contract takes effect on the happening of

contingency. According to the majority the contingent contract are

8 Madkūr , al-Madkhal, p.614.

9 Darīr, al-Gharar fi al-'Uqūd, p. 19.


184

void especially when they belong to the class of commutative

contracts such as sale and leasing. The reason is that the

contracting parties do not know whether the event will occur or

not, and whether the contract will be subsequently enforced or not.

It is also possible that one of the contracting parties may change

his mind when the event occurs. According to Hanfi jurists even

the gratuitous contracts are not permissible if made to take effect

on the happening of contingency. Thus, it is not permissible to

make a gift dependent on entrance of Zayd or the arrival of

Khalid. Similarly in waqf, it is essential that the appropriation

should not be made to depend on contingency. There are,

however, some contracts, which are allowed to be made

contingent upon uncertain event such as agency, bequest, and

suretyship assignment of debt, manumission and divorce. Thus it

is allowed to say to wife, “if you leave my house, then you are

divorced” or to say to prospective agent, “if I traveled abroad, then

you will be my agent”. Ibn al-Qayyim diverging from the majority

position held that the contingent contracts are valid. He does not

see any gharar in them.10

Conclusion

◙ The contracts with regard to the object, principal features of

contract have been classified as follows:

♦ contracts for alienation of property;

♦ contracts extinguishing the established right;

♦ contracts of authorization;

♦ contracts of partnership;

♦ contracts of guarantee;and

♦ contracts for safeguarding the property of a person.

◙ According to some scholars they are classified as under:

♦ commutative contracts such as sale, hiring ;

♦ gratuitous contracts such as waqf, gift ;

10

Ibn Taymiyyah, Naariyyat al-„Aqd, p.227.


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185

♦ contracts of trust such as agency depositing ;

♦ contracts of partnership such as sharikah, muārabah,

muzāra„ah ; and

♦ contracts of Suretyship such as guarantee, assignment of

debt and pledge.

◙ Contracts with regard to time of completion are divided into

the following three kinds:

♦ „Aqd Munjaz (contract immediately enforceable);

♦ „Aqd Muāf li al- mustaqbal (contract effective from

further date);and

♦ „Aqd Mu„allaq (contingent contract).

Chapter-14

Contract of Sale

The contract of sale is one of the most important contracts for the

exchange of goods. It is defined as “an exchange of a useful and

desirable thing for similar thing by mutual consent in a specific

manner.1 The word “useful” excludes from the purview of

definition unuseful transactions such as the sale of one rupee for

one rupee. While the word “desirable” excludes things such as

carrion and dust from being valid objects of sale, as these things

are not desired by the people. The words “in a specific manner”

signify the modes of conveying consent such as offer and

acceptance, and conduct.

Some jurists have added the words “for the alienation of

property”2 to the above mentioned definition to denote that

the purpose of such a contract is to transfer property in goods

to the buyer, and in price to the seller. Thus, the complete

definition of sale will be as follows: “Exchange of useful and

desirable thing for a similar thing by mutual consent for the

alienation of property”. It can also be defined as “exchange

of property for property with mutual consent”.

1 Kāsānī, Badā‟i„ al-anā‟i„, vol. 5, p. 133: Ibn al-Humām Fat al-Qadīr

vol. 5, p.73. 2 Shirbīnī, Mughni al-Mutāj vol.2:2, Ibn Qudāmā, al-Mughnī vol. 3,

559.

Contract of Sale

190

Definition of Māl (Subject-matter)

According to the anafī School, māl is that which is desired by

the people and stored for use at a time of need.3 It does not treat

benefits and incorporable rights as māl. The Shāfi„ī jurists on the

other hand include benefits in the definition of māl. To them the

sale contract contains both transfer of ownership in goods and

transfer of ownership in benefits.4 The Mālikī jurists, like anafī

jurists do not regard benefits and incorporeal rights as māl and

consequently do not allow their sale.

Dissatisfied with the definitions of māl in early jurisprudence,

Muafā Zarqā, a renowned scholar, has applied māl to every thing

that has legal and material value among the peoples.5 The property

in this sense refers to any tangible or intangible thing that gives

determinate capacity to a person to use it to the exclusion of whole

world. It includes both abstract and unreal rights. It applies equally

to the objects, which have perceptible existence in the outside

world as well as to intangible property such as trademarks and

intellectual property.

Classification of Māl

Property has been classified in different ways:

I. Movable and Immovable:

There are two principal classes of property movable (manqūl) and

immovable (ghayr-manqūl). By immovable is primarily meant

land and along with it all permanent fixtures, such as buildings.

The characteristic of movable property is that it may be removed

from one place to another place. Movable property is classified as

follows:

(a) Makīlāt or things, which are ordinarily sold by

measurement of capacity.

(b) Mawzūnāt or things, which are sold by, weight.

3 Ibn „Abidīn, Radd al-Mutār vol.4.p.3.

4 Shirbīnī, Mugnī al-Muhtāj vol.2, p.3.

5 Muafā Amad Zarqā, al-Madkhal al-Fiqhī al-„Am, Demascus:

Matba„ah Tarbīn, 1968, Vol.3, P.122.


191

191

(c) Madhr„at or things which are estimated by linear

measurement.

(d) „Adadiyyāt or things which are estimated by linear

measurement.

All articles of the nature of makīlāt, mawzūnat, „adadiyyāt, and

madhrū„at are comprehensively called muqaddarāt.

II. Fungible or Similar (Mithlī) and non-Fungible or

Dissimilar (Qīmī ):

An article is said to belong to the class of similar (mithlī) if the

like of it can be had in the market without there being such

difference between the two as people are apt to take into account

in their dealings. A thing belongs to the class of dissimilar if the

like of it is not available in the market or if it be available, it is

with such difference between them as people are wont to take into

account in fixing the price.6

III. Determinate (‘Āyn) and Indeterminate (Dayn) property.

Connected with the division of things into similar and dissimilar is

the division of property into „ayn that is, specific or determinate

and dayn or non-specific or indeterminate property. The chief

distinguishing test is when a man is to get certain property from

another who either borrowed it from him or took it by force,

whether he is entitled to recover it in species or not. If he is, then it

is called specific or determinate and if he is not, it is called non-

specific or indeterminate.

Articles of the class of similar cannot, as a rule, be recovered

specifically, and are thus regarded as dayn or indeterminate

property. Hence, gold and silver in the shape of coins or otherwise,

grain, oil and the like are dayn or indeterminate property.

Therefore, if a man sells an article for one hundred dirhams out of

a bag of money pointed out to him by the buyer, he does not

become entitled to be paid out of the identical bag but his claim

will be satisfied on being paid an equivalent amount. Generally

speaking all indeterminate property rests on the mere

6 See „Abd al-Raīm Muammadan Jurisprudence. p. 211.

Contract of Sale

192

responsibility or obligation of the person from whom it is

recoverable.7

Conditions for Validity of Sale

1. Contracting parties should posses legal capacity

necessary for concluding contract, i.e., they should be

competent to conclude the contract.

2. The Commodity should be any thing in which

transactions are permissible in the Sharī„ah. This means

that it should be a pure substance ritually and legally

clean. Therefore, any substance, which is religiously and

legally unclean and upon whose disposal there are

restrictions cannot serve as an object of sale: e.g. wine,

pig, intoxicants, blood, and the carcasses of an animal are

not valid objects of sale.

3. The merchandise must be either in actual existence or it

should be capable of being acquired and delivered to a

buyer in the future.

4. The transactions, which involve an element of

uncertainty and risk with regard to the existence and

acquisition of subject matter, are forbidden in Islamic

Law. Examples are as follows:

♦ The sale of fish in water

♦ Sale of a foetus in the womb

♦ Sale of milk in the udder of an animal

♦ Sale of fruit on a tree at the beginning of season

when their quality cannot be established.

From this it may be concluded that only that non-existent

thing is excluded from the purview of a valid transaction, which

involves an element of uncertainty. Things, which can be

produced and manufactured in future, are the valid objects of sale

as they are free from the attribute of uncertainty.

7 Ibid, p. 212.


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193

5. Goods should be owned by someone. If one sells something

before acquiring ownership, such sale is invalid. Things in

which no real ownership can be established, e.g., pious

endowment (waqf) or public property are also excluded from

being the subject matter of sale contract.

6. The item should be possessed by the owner. It is a necessary

condition so that he is able to deliver it to the purchaser in the

event of the sale contract. Things, that are not in actual

possession, such as a thing lost or usurped, cannot be made the

subject matter of a contract. Besides, the Holy Prophet

(s.a.w.s) has prohibited the sale of foodstuffs before taking

their possession. Other things can be validly sold before taking

their possession if the vendor can subsequently deliver them to

the purchaser.

7. The item of sale should be known to the contracting parties.

This requires that their subject-matter should be ascertained. It

can be realized through examination of the object if it is

present in the session of contract or through a precise

description if it is not available at the time of the contract. The

description should be detailed enough to do away with all

vagueness and uncertainty. The majority of the jurists allow it.

The Shāfi'īs do not allow sale by description and stipulate

actual examination at the time of the contract as a necessary

condition. Sale by description confers the "option of

description” upon the buyer, whereby he can reject the goods

if they do not conform to the description.

8. The conditions of property have been discussed in detail

in Chapter-III under the title Elements of Contract:

Subject- matter.

9. Consideration may be deferred to a fixed future period

but it cannot be suspended on an event the time of the

occurrence of which is uncertain. Thus, it is not lawful to

suspend payment until the wind shall blow, or until it

shall rain; nor is it lawful even though the uncertainty be

so inconsiderable as almost to amount to a fixed term.

Contract of Sale

194

Thus, it is not lawful to suspend payment until the

sowing or reaping time.

10. The sale contract should be absolute and not contingent upon a

future event. For example, A says to B, “If X wins election,

my car stands sold to you”. Such a contract is invalid.

11. The sale must be instant. The majority of the jurists are of

view that sale contract must come into effect immediately on

the conclusion of the contract. Its effects cannot be postponed

to a future date. Thus, it is not valid to make contract effective

from some specified date in future.

Some expressly prohibited sale contracts of Islamic law

1. Bay‘ al-Mukhāarah :

It refers to sale of fruits on tree before their benefit is evident since

they are not free from being spoiled. It is narrated by Anas ibn

Mālik that God‟s Messenger (s.a.w.s) forbade the sale of fruit till

they were almost ripe. Allah‟s Messenger further said: “If Allah

spoiled the fruits what right would one have to take money of

one‟s brother”?8 Mukhāarah also refers to the sale of grain or

vegetables before they are ripe.

2. Bay‘ al-Juzāf:

This applies to sale of foodstuffs at random or haphazardly. It is a

sale of goods, which are not determined as to their quantity.

3. Bay‘ al-Munābadhah (throw sale):9

♦ Such a sale is affected simply by two parties mutually

exchanging their goods without any examination by either

side.

♦ Sale is completed when the seller throws down the goods

with no opportunity for the purchaser to see it.

8Bukhārī, aī as quoted in Shawkānī, Nayl al-Awār, vol.5, p.183.

9 Ibid, vol.5, p. 159.


195

195

4. Bay‘al-Mulāmasah:10

This is to buy an object by merely touching it, without

examining it. It is a sale of a piece of cloth already folded,

that is bought by merely touching it, and renouncing in

advance the right to revoke on inspection.

5. Bay‘al-Muhāqalah:11

Sale of wheat in exchange of wheat in ear to be estimated by

conjecture.

6. Bay‘al-Muzābanah:12

Sale of fresh fruits in exchange of dry fruits in a way that the

quantity of dry fruit is measured while the quantity of fresh fruits

is uncertain.

7. Bay‘ al-aml:

Sale of what a female animal bears in the womb.

8. Bay‘ al-asāt: 13

In this form a sale is affected by saying: “of these pieces of cloth, I

sell you the one upon which falls pebble thrown in the air”.

9. Mu‘āwamah:14

The selling of fruits on tree in advance for two or three years.

10. Darbat al-Ghā’is :15

Such a transaction is affected by saying: “I dive into the sea, if I

have anything (pearl), it will be yours at such and such price”.

11. ‘Asb al-Fal:

This refers to renting service of a male animal to cover female

animal. The Holy Prophet (s.a.w.s) is reported to have prohibited

10

Ibid. 11

Ibid 12

Ibid 13

Shawkānī, Nayl al-Awār vol.5, p. 156. 14

Ibid., vol. 5, p. 186. 15

Ibid., vol. 5, p.158.

Contract of Sale

196

such contract and disallowed receiving price or cost of this

service.16

12. Sale of fish in water:

This type of sale was commonly practiced by Arabs in pre-Islamic

period. Holy Prophet (s.a.w.s) forbade such contracts.17

13. Bay‘abl al-abalah:

This refers to sale of younglings to be brought later from the

foetus of an animal.18

14. Bay‘ al-Kāli’ bi al-Kāli’:19

This means exchange of credit for credit. What is prohibited by

this contract is the purchase by a man of a commodity on credit for

a fixed period, and when the period of payment comes and he

finds himself unable to pay the debt, he says, “Sell it to me on

credit for further period, for something additional. Whereupon he

sells it to him. The Prophet (s.a.w.s) has prohibited such a sale.20

15. Bay‘ wa Salaf (Selling and lending):21

The explanation of this practice is that one man says to other “I

shall take your goods for such and such if you lend me such and

such. In a tradition the Holy Prophet (s.a.w.s) asked „Attah Ibn

Asīd, his representative to the people of Makkah, to stop the

people of Makkah from making a selling and lending contract

concurrently.22

16. Sale of Milk in the Udder of Animals:

The Prophet (s.a.w.s) is reported to have prohibited this

transaction except when the milk was measured after milking.23

16

Ibid., vol. 5, p.155. 17

Ibid., vol. 5, p.156. 18

Ibid,. vol. 5, p. 156. 19

Ibid vol. 5, p. 165. 20

„Abd Allah „Alwī ājī assan, Sale and Contracts, in Early Islamic

Commercial Law, Islamabad: Islamic Research Institute, 1994, p.65. 21

Ibid., p.66. 22

Shawkānī, Nayl al-Awār, vol. 5, p. 190. 23

Ibid., vol. 5, p. 158.


197

197

17. Sale of food before possession:

The Holy Prophet (s.a.w.s) has prohibited the resale of food before

possession. From Ibn „Umar, may Allah be pleased with them both

who said, “I bought oil in the market and was about to take it

when I met a man who offered me a good profit. I decided to

strike a bargain with him and at that time someone took hold of

my elbow from behind. I turned behind and saw that it was Zayd

ibn Thābit. He said, „Do not sell it at the spot you bought it from,

not until you have moved it to you camel-pack. The Messenger of

Allah (s.a.w.s) forbade the sale of goods on the spot they are

bought, not until the traders move them to their camel-packs”.24

The purpose of this adīth is to emphasize the principle of

liability, which means that food bought, should not be sold unless

it has moved into the liability of buyer. This is realized either

through delivery of possession or identification of a particular lot

of food sold.

It also aims at discouraging over-trading and middlemanship.

An example is when a person purchases grain lying in an

agricultural farm and without removing it from the farm sells it to

another person for a higher price than the price at which he had

purchased it. This new middleman sells it further at a relatively

higher price than his purchase price. This process continues and

everybody keeps on earning thousands of rupees without investing

anything while the commodity remains where it was at the first

place during its first transaction, only its price keeps on increasing

and till it actually reaches the market in front of real consumer its

price is increased many times. Hence, this adīth represents an

indirect order to end the profession of middlemanship.25

Kinds of Sale Transactions

Following are important kinds of sale in Islamic Law.

1. Muqāyaah: The sale of goods for goods, or barter

trade.

2. Bay „ Mulaq: The sale of goods for money.

3. arf: The sale of money for money or money changing.

24

Ibid., vol. 5, p. 167. 25

See Ghulām Murtazā, Socio-Economic System of Islam, pp. 38-39.

Contract of Sale

198

4. Salam: This is a sale in which the price is paid in

advance and the articles are delivered on a future date.

5. Istinā„: A Contract of manufacturing.

6. Murābahah: In such a transaction the vendor sells an

article for the cost price in addition to a certain stated

profit.

7. Bay' al-mu‟ajjal: Credit sale or sale on deferred

payment basis.

I. Muqāyaah:

Barter trade is permissible. If the commodities to be bartered

belong to the class of ribā commodities, then the requirement of

the lawgiver is as follows:

a). If both the commodities are of the same genus, then

immediate delivery and equality has to be observed.

b). If they differ in kind, then they should be exchanged in the

same session of contract.

c). In case of exchange of homogeneous commodities, the

quality has to be ignored. The Prophet (s.a.w.s) had,

reportedly rejected the transaction in which Bilāl (r.a.t.a)

had exchanged two measures of inferior dates for one

measure of superior ones.26

II. Bay‘ Mulaq:

This is sale of goods for money. Although barters trade is

permitted with some qualifications, use of cash money is preferred

and encouraged by Islam. This preference of cash money comes

almost close the requirement when barter of the same commodity

is involved. The purpose is to avoid any occurrence of ribā. The

Prophet (s.a.w.s) had instructed Bilāl (r.a.t.a) to sale two measures

of inferior dates for money and then purchase superior ones with

that money. This shows the importance of money as an instrument

of just and equitable exchange. The adīth in question is

indicative not only of the importance attached to money but also

of the consideration of current market rates with regard to the

exchange of produced goods. Needless to stress that money

26

Bukhārī , aī as quoted in Nayl al-Awār, vol.5, p. 207.


199

199

provides a standard for real and just exchange of value of various

commodities.

III. arf:

Sale of absolute price for absolute price is known as arf contract.

The main conditions of arf contract are as follows:

1. The condition that is specific to the contract of arf and

distinguishes it from all other contracts is that the counter

values must be delivered and taken possession of within the

session of the contract. In other words, a condition for delay

cannot be stipulated.

2. No option can be stipulated in this contract. The reason is that

an option delays the transfer of ownership and this violates

the first condition of spot delivery and possession.

3. Equality or sameness in weight is must if gold is exchanged

for gold, but if gold is exchanged for silver, then equality is

not the requirement of the Sharī„ah. In this case the counter-

values must be exchanged simultaneously.

4. Good and bad quality of exchanged counter-values is not

relevant in this contract.

The rules of arf contract have been mentioned in a large

number of aādīth The best known of these aādīth are the two

that have been narrated by „Ubādah ibn al-āmit and Abū Sa„īd al-

Khudrī:

(i) From „Ubādah Ibn al-āmit, who said, The Messenger of

Allah (s.a.w.s) said: “Gold for gold, silver for silver,

wheat for wheat, barley for barley, dates for dates, salt

for salt, like for like in equal weights, from hand to hand.

If the species differ, then sell as you like, as long as it is

from hand to hand”.27

ii) From Abū Sa„īd al-Khudrī, who said: “The Messenger

of Allah (s.a.w.s) said, “Do not sell gold for gold, except

when it is like for like, and do not misappropriate one

27

Shawkānī, Nayl al-Awār, vol. 5, p.201.

Contract of Sale

200

through the other, and do not sell silver for silver except

like for like and do not misappropriate one through the

other, and do not sell things absent for those that are

present”.28

The rules mentioned earlier are not specific with gold and

silver or dīnār and dirham alone, but are applicable to every

commodity or thing that performs the functions of money namely;

a medium of exchange, unit of value, and standard of deferred

payment.

It is worth mentioning that gold and silver are considered as

species of price in Islamic Law. It makes no difference whether

gold and silver is sold in the shape of coins or ornaments or

otherwise. They are treated always as price because it is the very

nature of these metals. When gold is sold for silver or vice versa,

there is no requirement of equality in bargain but the delivery of

both articles is a must. Thus, two parties exchanging dollars with

rupees must have to exchange them in the same session of contract

without any delay.

Some modern Scholars claim that gold and silver are real

money whereas paper currency is merely a token money. They

infer from this that the rules involving the exchange of gold and

silver and other fungible goods cannot be strictly applied to paper

currency.

In the following lines we will discuss the position of paper

currency according to the Sharī„ah. The discussion on the legal

position of paper currency in Islamic Law requires to define first

what is money and what functions it performs in the economy of

our time.

Definition of Money

Money has been defined as a “thing that serves as a commonly

accepted medium of exchange or means of payment”29

Another

famous and comprehensive definition of money is that “Money is

28

Ibid. 29

Paul A. Samuelson and William Nordhaus Economics, New York:

McGraw Hill Book Company, 1993 p. 226.


201

201

any generally acceptable means of payment in exchange for goods

and services and in settling debts”.30

Money performs four main

functions. It is (i) a medium of exchange or means of payment, (ii)

a measure of value or a unit of account, (iii) a standard of deferred

payment, and (iv) a store of value.

Money is classified under two categories: (1) commodity money

and (2) token money. The former functions as a medium of

exchange and is bought and sold as ordinary goods. Token money,

however, is considered to be a means of payments whose value or

purchasing power as money exceeds the cost of its production and

its value in alternative uses. Modern monies are accepted because

the law requires them to be accepted. These are fiat monies or

legal tender. Legal tender is the money that a government has

declared acceptable in exchange and as a lawful way of paying

debts.31

Historically, many commodities including precious metals

have performed these functions, but only those metals were picked

up for this purpose that were scarce and had a worldwide demand.

The principal forms of money are now coinage, notes and credit

instruments. But since coins are now very rarely made of precious

metals, they perform the token function, being almost worthless in

content when compared with its face value.32

At the present, paper

money is the most widely used form of money and is a pure token

because its intrinsic price has no relevance to its face value.

The Position of Gold and Silver in the Sharī„ah

A study of Fiqh literature on the issue reveals that Muslim Jurists

treated dinār and dirham as money, not because they were made

of gold and silver, but because they possessed the characteristics

of money; that is, they served as a unit of account, a medium of

exchange and measure of value. To them the „illah (underlying

30

Fischer, Dornbusch and Schmalensee, Economics, Singapore: McGraw

Hill Book Company, 1993, p. 623. 31

Ibid., pp. 626-27. 32

Ziauddīn Amad,Currency Notes and Indexation, Islamic

Studies,28.1(1980) p.52.

Contract of Sale

202

cause) in gold and silver in the context of the contract of arf is

currency-value or price-worthiness (thamaniyyah).33

Gold and silver have been thaman or money since early ages

because they were capable of effectively functioning as a medium

of exchange and a common measure of value.

The Legal Position of Paper Money

Were we to consider the matter carefully it will be evident that

there is no essential difference between the old metallic money

and the paper money of our time since both serve as a measure to

determine the value of other commodities. Paper money, therefore,

is real money for all the practical purposes. This fact has been

established and emphasized in the writings of several eminent

Muslim Scholars. Yūsuf al-Qardāwī, for instance writes:

We pay price of goods, wages to workers, dower to wives,

diyat in qatl al-khaā in this paper money. If someone steals it,

he is subjected to the punishment of theft in all codes of

criminal law. Then why should we deny it the status of legal

money?34

Keeping all these facts in view the Fiqh Academy of Makkah in its

meeting held in October, 1986 maintained that paper money has

all the characteristics of gold and silver. It is thaman from the

point of view of the Sharī„ah and consequently it is subject to all

the rules of the Sharī„ah pertaining to ribā, zakāt, salam, and other

contracts which are applicable to gold and silver.35

The workshop held under the auspices of the Islamic

Development Bank in Jeddah in April, 1987 on indexation also

concluded that: “Paper money assumes the functions of gold and

silver money from the point of view of the applicability of the

33

Kāsānī, Badā‟i„anā‟i„, vol.5, p.183. 34

Atiq al-Zafar,Ribā aur Bank Kā Sūd translation of Yūsuf Qardāwī's,

Fawā'id al-Bunūk hiya al-Ribā al-Muaram pp. 40,41.. 35

Rābiah al-„Ālam al-Islāmī, Qarārāt Majlis al-Majma„, al-Fiqh al-

Islāmī, pp. 96,97.


203

203

rules of ribā and zakāt as well as being the principle of salam

contracts, a capital of muārabah or investment in a partnership.36

IV. Salam Contract:

In Arabic, the word salam means to advance. This is a contract

whereby the purchaser pays the price in advance and the delivery

of subject matter is postponed to a specified time in future.

Thus, bay„ salam is a sale in which advance payment is made

to the seller for deferred supply of goods. Salam was also

prevalent even before the advent of the Holy Prophet (s.a.w.s)

perhaps with a different nomenclature. When the Holy Prophet

(s.a.w.s) migrated to Madinah, his Madinan Companions brought

this mode of sale to his notice for seeking his guidance. He termed

it as salam and allowed it to them with some conditions.

As a matter of principle the sale of a commodity, which is not

in possession of the seller, is unlawful. This is what the Holy

Prophet (s.a.w.s) is stated to have laid down as a general rule.

Thus the practice of bay„ salam is legalized as an exception.

According to some jurists the legality of bay„ salam is derivable

from the Quranic verse 2:282:

“O ye who believe; when ye contract a debt for a fixed term,

record it in writing”37

The reason why the Holy Prophet (s.a.w.s) permitted it

with some conditions is necessity faced by growers and

traders. It is stated that the practice as qualified by Holy

Prophet (s.a.w.s) continued during his lifetime and the

following period. The later jurists unanimously treated it to

be a permissible mode of business. The jurists have not

confined the application of this mode of sale to those

agricultural products, which as the adīh suggests, could be

weighed or measured. But have expanded the list of

salamable items to all the commodities that could be precisely

determined in terms of quality and quantity.

36

Recommendations of the Workshop on Shariah position on Indexation.

(25-26 April 1987) organized by Islamic Development Bank, Jeddah. 37

Qur‟ān: 2, 282.

Contract of Sale

204

Difference between Salam Sale and Ordinary Sale

All the basic conditions of a contract of ordinary sale remain the

same in bay„ salam. Yet there are some points of difference

between the two. For example:

(a) In salam sale it is necessary to fix a period for the

delivery of goods, in ordinary sale it is not necessary.

(b) In salam sale commodity not in possession of the seller

can be sold; in ordinary sale, it cannot be.

(c) In salam sale only those commodities, which can be

precisely determined in terms of quality and quantity,

can be sold; in ordinary sale every thing that can be

owned is saleable, unless the Qur‟ān or the adīh

prohibits it.

(d) A salam sale cannot take place between identical goods,

for example; wheat for wheat or potato for potato; in

ordinary sale it is permissible to sell identical goods.

(e) In the salam sale, payment must be made at the time of

contract; in ordinary sale payment may be deferred or

may be made at the time of the delivery of goods.

The conditions of a valid salam

A valid contract of salam sale requires the fulfillment of the

following conditions, which are over and above the conditions of

an ordinary sale:

1. It is necessary that the buyer pay the price of the object in full

to the seller in advance. If the price is not paid at the time of

the contract, it will amount to sale of a debt for debt, which

has been prohibited by the Holy Prophet (s.a.w.s).38

2. An outstanding loan due on the seller cannot be fully or

partially fixed as price nor a loan outstanding on a third party

can be transferred to the seller in future adjustment towards

price.

38

Shawkānī ,Nayl al-Awār, vol. 5, p.165.


205

205

3. A single amount for payment of different commodities or of

the same commodity in different periods or at different places

is not approved because in the former case it may lead to a

dispute on pricing in the event of the seller‟s failure in

delivery of some of the contracted items and in the latter case

price fluctuation over the period may become a point of

dispute if the seller fails to supply the item on some fixed

period. It is, therefore, necessary that the amount for each

item and for each period of delivery be separately fixed.

4. The object of salam should be defined by description. It

requires a precise and minute description of the commodity,

which does away with all vagueness and uncertainty.

Identification of object should include genus, species, colour,

and country of origin and any other feature, which has an

effect on the price.

5. Salamable articles include fungible things, i.e., weighable,

measurable, and accountable by number. Non-fungible things

such as precious stone cannot be sold on the basis of salam

because every piece is normally different from the other

rendering their exact specification impossible. To some

jurists any article determinable by description, can be the

object of salam contract. Thus, domestic animals are valid

object of salam subject to identification.

6. The commodity should be well defined but not particularised

to a particular unit of farm, tree or garden, because there is

possibility that crop of that farm is destroyed before delivery.

7. The object of salam should be in existence from the time of

contract until the time of delivery. This is the anafi

viewpoint. Other jurists hold that it should be habitually

available at the time of delivery.

8. A salam contract cannot be affected on things which must be

delivered on spot. So, gold cannot be sold for gold by way of

salam. Similarly wheat cannot be sold for barley because they

cannot be exchanged with delay. It is necessary that the

exchange of gold for gold or wheat for barley should take

place simultaneously in the same session of contract.

Contract of Sale

206

9. About the minimum period of delivery, the jurists have the

following opinions:

a). anafī jurists fix this period at one month. To some

anafī Jurists minimum delay should be three days. But,

if vendor dies before the delay has elapsed, the salam

reaches maturity.

b) According to the Shāfi„ī jurists salam can be immediate

and delayed.

c) According to the Malikī jurists, delay should not be less

than 15-days.

10. The time of the subject-matter of salam should be fixed at the

time of the contract.

11. As regards delivery before time the opinion of the majority of

Muslim jurists, is that seller can discharge his obligation

before the agreed term and the purchaser will be forced to

accept the delivery if an early delivery does not harm him.

But if he apprehends that he will suffer damage by early

delivery i.e. fruits, which may be consumed or need storing,

then he will not be forced to accept early delivery. Mālikī

jurists, on the other hand, maintain that he is entitled to refuse

it even if it does not harm him.

12. Fixing the place of delivery is requisite if it entails extra

expenses, or the place of contract is not a suitable place for

delivery.

13. It is not permitted to exchange goods other than those

specified while the contract of salam still exists because it

results in the sale of awaited goods before they have been

received. Besides, this falls under the prohibition of selling

foods before possession. The Holy Prophet (s.a.w.s) said,

“Whoever buys foodstuff should not sell it before he receives

“or possesses it”.39

39

Ibid., vol. 5, p. 167.


207

207

14. The buyer is not allowed to take back any thing in salam

except the sum of money or goods themselves.

15. In order to ensure that the seller honours his commitment

given to the buyer to supply the agreed quantity of the

specified goods on the due date or at the agreed time, the

buyer has a right to claim surety or pledge or both. This is

generally agreed to by the jurists.

16 The buyer is not allowed to enjoy ownership rights over the

purchased goods before taking them into his possession.

Thus, he cannot sell them or make them a partnership capital,

unless he takes over the goods.40

Revocation of the Contract

As stated above a seller is bound to deliver the goods as stipulated.

There may, however, be situations when it is not possible for him

to honour his commitment; the examples are death, or damage to

the goods while lying with the supplier for delivery. In the event

of death of the seller the contract of bay„ salam will be deemed to

be rescinded and the buyer will claim the return of his money from

the heirs.

In the event of the death of the buyer, however, the contract

will remain operative. Damage to the goods will nullify the

contract only when it exceeds the normal extent of damage. In the

event of revocation of the contract, the buyer will receive back his

advance. Ordinarily the buyer has no right to change the

conditions of the contract in respect of the quality or quantity or

the period of delivery of the contracted goods after payment is

made to the seller. Both parties, however, have the right to rescind

the contract in full or in part. The buyer will thus have a right to

receive back the amount advanced by him, but not more or less

than it.

40

See for detailed explanation of these conditions. Zuaylī, al-Fiqh al-

Islāmī wa Adillatuhū, vol. 4, pp. 599-624. and asanuz Zaman, Bay'

Salam, Principles and their applications :by: paper presented in the

seminar on Islamic Financing Techniques, Islamabad Dec. 1984.

Contract of Sale

208

Modern Applications of the Salam Contract

Islamic banks and financial institutions use salam as a mode of

financing. They finance the needs of farmers who need money to

grow their crops. They enter into an agreement with them for

advance purchase of agriculture produce, specifying complete

details of the commodity, its quality, price and time of delivery

and make payment of the amount at the time of entering into the

agreement. When the commodity is produced and supplied to the

bank on the appointed date, they sell it at profit in the market.

The banks sometimes sell the commodity through a parallel

contract of salam. The period in the second contract is shorter

while the price is fixed a little higher than the price of first

transaction. Thus, they earn profit by the difference between two

prices. There may be another way of benefiting from salam. The

bank may obtain a promise to purchase from a third party. This

promise should be unilateral from the prospective buyer. Being

merely a promise, and not an actual sale, the buyer will not have to

pay the price in advance. Therefore, a higher price may be fixed

and as soon as the commodity is received by the institution: it will

be sold to the third party at a pre-greed price according to the

terms of the promise.41

While resorting to parallel salam contract, two conditions

must be observed by the banks:

1. In an arrangement of salam, the bank enters into two different

contracts. In one of them the bank is the buyer and in the

second one the bank is the seller. Each one of these contracts

must be independent of the other. For example if A has

purchased from B 1000 bags of wheat by way of salam to be

delivered on 31st December, A can contract a parallel salam

with C to deliver to him 1000 bags of wheat on 31st

December. But while contracting parallel salam with C, the

delivery of wheat to C cannot be conditioned with taking

delivery from B. Therefore, even if B did not deliver wheat

on 31st December, A is duty bound to deliver 1000 bags of

41 Taqī „Usmānī, An Introduction to Islamic Finance, p. 194.


209

209

wheat to C. Similarly, if B has delivered defective goods

which do not conform with the agreed specifications, A is

still obligated to deliver the goods to C according to the

specifications agreed with him.

2. Parallel salam is allowed with a third party only. The seller in

the first contract cannot be made the purchaser in a parallel

contract of salam, because it will be a buy-back contract,

which is not permissible in the Sharī„ah..42

V. Istinā‘:

Istinā„ consists in ordering an artisan or manufacturer to make

certain goods answering a given description. By istinā„ one may

engage for example, a cobbler to make a pair of shoes for a fixed

price or ask a tailor to make a suit to be delivered later.43

According to Imām Kāsānī the material of object must be

from the manufacturer. If it is provided by the customer, and the

manufacturer has used his labour and skill only, it will not be a

contract of istinā„, instead it would be a contract of ijārah, i.e., a

contract to hire services of a person to undertake a specific work.

Thus, if a person gives a piece of iron to an ironsmith to make a

specific vessel for a known consideration, it is permissible but it

will not be istinā„, rather it will be called a contract of hiring.44

The legality of this from of contract is based on a custom,

which prevailed from the time of the Holy Prophet (s.a.w.s) and is

also justified having regard to the need of people.

Difference between Istinā„and other Allied Contracts

The contract of istinā„ resembles the contract of salam and

ijārah. It has also similarity with the “promise to sell”. Here we

will highlight some differences between istinā„ and the above-

mentioned contracts for a better understanding of the contract of

istinā„.

42

Ibid., p. 195. 43

Badā‟i„anā‟i„, vol. 5, p. 3. 44

Ibid.

Contract of Sale

210

Difference between Istinā‘ and the “Promise to Sell”

Istinā„ resembles “promise to sell” in that it constitutes a promise

on part of manufacturer to make an object, which is non-existent at

the time of contract

ākim al-Shahīd from amongst the anafī Jurists is of the

view that istinā„ is a promise to sell. The majority of Anāf, on

the other hand, hold the opinion that it is a sale not a promise to

sell. Their opinion is based on the following arguments.

1. All the Jurists are unanimous on the point that legality of

istinā„ is established by istisān (juristic preference) and

there is no denying the fact that this principle is invoked in

the contracts not in the promises.

2. The Jurists allow option of inspection (khiyār al-ru‟yah) in

istinā„, which is an evidence of the fact that it is a sale

because options are valid in contracts only.

3. In istinā„ the parties have right to resort to court in case of

dispute arising from some default or breach of contract. This

is a proof of its being a contract because litigation is

permissible in contracts which are binding on parties not in

simple promises.45

Difference between Istinā„ and Contract of Personal Services

Istinā„ is similar to ijārah of professional services, because

services of a manufacturer are hired to manufacture a thing as in

the case of ijārah. But the difference between the two is that the

subject matter in the former case is the object, which is required to

be made while the subject matter in latter case is the work to be

done, or the performance to be made by the manufacturer. So, if

A, a customer asks B, a cobbler, to make a shoe out of the material

provided to him by A, then the subject matter in such case would

be the act of making shoe, not the shoe itself and the contract

would be that of ijārah But if A, a customer asks B, a

manufacturer to make a shoe from his own material, then the

subject matter in such case is the shoe.

45

See Zayla„ī, Tabyīn al-aqā‟iq vol. 4, p.124.


211

211

What strengthens this conclusion is the fact that if the

manufacturer provided the object, which he had made before the

contract and the customer accepted it, the contract would be valid.

This shows that the subject-matter of the contract is the object

itself not the work. On the other hand, contract for work or service

requires that it should be done after the contract is concluded. The

contract of istinā„, however, resembles the contract of personal

services in the following two points.

(a) It lapses on death of one of the parties just like a contract

of personal services.

(b) The man who has ordered the goods is entitled to refuse

or accept it if he finds that they are not according to

order.46

Difference between Istinā‘ and Salam

Following are some points of difference between istinā„ and

Salam.

1. The commodity in salam rests on responsibility (dimmah). It

is considered a debt (dayn). It is normally a weighable,

measurable or countable thing, while the commodity in

istinā„ is treated as determinate thing („ayn) such as furniture

or shoe or tailoring cloths.

2. The subject matter of istinā„ is always a thing, which needs

manufacturing while salam can be affected on every thing

whether it needs manufacturing, or not.

3. The price in salam is paid in advance, while in istinā„

contract the price can be paid any time during the contract.

4. The time of delivery in salam is specified; whereas it is not

requirement in istinā„ that the time of delivery be fixed.

According to Imām Abū anīfah if time is fixed in istinā„,

the contract will be a salam contract, and will no longer be an

istinā„ contract.

46

See Kāsanī, Badā‟i„ al-anā‟i„, vol. 5, p.4.

Contract of Sale

212

5. Salam is a binding and Irrevocable contract while the istinā„

can be revoked unilaterally. 47

Conditions of Istinā „

anafī Jurists acknowledge three conditions for a valid contract of

istinā„, they are:

1. The subject of istinā„, should be precisely mentioned in

terms of its kind, quality and quantity.

2. There should be some work or performance involved in the

commodity.

3. The time of the completion of work and delivery should not

be fixed. This is the view of Imām Abū anīfa. His two

disciples disagree with his teacher and hold that time should

be fixed.

4. The price or consideration should also be specified.48

Status of the Contract of Istinā„

There is a consensus of opinions among anafī Jurists that the

contract of istinā„ is non-binding and terminable before the

commencement of work.49

Imām Abū Yūsuf acknowledges the

option of inspection (khiyār al-Ru‟yah) for the purchaser. To him

purchaser can revoke the contract on sight even though the

commodity is according to the description.50

Majallat al-Akām al-„Adliyyah, the civil code of the

Ottoman Empire, has not accepted the viewpoint of the anafī Jurists regarding the non-binding status of istinā„. Article 392 of

the Majallah provides that if the manufacturer brought the goods

according to specification, the purchaser will be forced to accept

47

See: Amd Yūsuf, „Uqud al-Mu„malāt‟ al-Maliyyah, p. 216. 48

See Kāsib „Abd al Karīm, „Aqd al-Istinā' fī al-Fiqh al-Islāmī, pp.

133,134. 49

See Badā‟i„ al-anā‟i„, vol. 5, p. 3, Radd al-Mutār vol. 4, p. 223. al-

Mabsū, vol. 13, p.139. 50

Al- Mabsū,, vol. 12, p. 139; Badā„ī‟ al-anā‟i„, vol. 5, p. 3.


213

213

them. It also states that once the contract of istinā „ is concluded,

it becomes binding on manufacturer to manufacture the object.51

Termination of Istinā‘

The contract of istinā„ is terminated in the following

circumstance:

1. By completion of work and handing over the object to the

purchaser.

2. By the death of manufacturer.

It is pertinent to note that death causes termination of contract

only when the contract is for specific performance and the

heirs of deceased manufacturer do not have ability to carry

out the work in required manner.

Modern applications of Istinā‘

Islamic Banks and Financial Institutions use istinā„ as a mode of

financing. They finance the construction of houses factories on a

piece of land belonging to client. The house or factory is

constructed either by the financier himself or by a construction

company. In this latter case, the bank enters a sub-contract with

that construction company. But if the contract concluded between

the bank, i.e, the financier, and the client provides specifically that

the work will be carried out by the financier himself, then the sub-

contract is not valid. In such a case, it is necessary that the bank

should have its own construction company and expert contractors

to discharge the task.

The financier in the contract of istinā„ for the purpose of

construction is under obligation to construct house in conformity

with the specifications detailed in the agreement. Some

agreements provide that the financier will be liable for any defect

in construction and destruction of the building during the period

specified in the contract. In case the financier assigns the task of

construction to a third party, it is necessary that it should supervise

construction work in a regular manner. The price of construction

may be paid by the client at the time of agreement and may be

51

Mujallah, Article 392 .

Contract of Sale

214

postponed till the time of delivery or any other time agreed upon

between the parties. The payment may be in lump sum or in

installments. In order to secure the payment of installments, the

title deeds of the house or land may be kept by the bank as security

till the last installment is paid by the client.

The mode of istinā„ is used also for digging wells and water

canals. Islamic banks finance the agricultural sector through this

mode and play their effective role in activating this important

sector of the economy.

VI. Murābaah:

Murābaah is a sale of goods at a price covering the purchase

price plus profit margin agreed upon between the contracting

parties. In murābaah, the seller discloses the cost of the sold

commodity. He tells the purchaser that he has purchased

commodity, say, for hundred rupees and that he will charge ten

rupees as profit over and above the original price. It is also

permissible to fix the profit in percentage i.e. 5% 10% of the cost.

Murābaah is basically a trust sale (bay„ al-amānah) in

which the buyer depends and relies upon the integrity of the

purchaser as regards the cost he mentions to buyer. Thus, it is the

moral and legal obligation of the seller to be honest and truthful in

stating the price at which he purchased the goods, and if he

succeeded in obtaining a discount or rebate, it should also be

acknowledged and accounted for the benefit of the purchaser. In

Islamic Law, the contract of sale with regard to the cost of the

sale‟s object to the seller, is divided into three kinds:

(i) Tawliyah: resale at the stated original cost with no profit

or loss to the seller.

(ii) Wadī„ah: resale at a discount from the original cost.

(iii) Murābaah, the resale at fixed surcharge or rate of

profit on the stated original cost.


215

215

The main purpose of these sales is to “protect the innocent

general consumer lacking expertise in the various items of trade

from the wiles and stratagems of sharp traders”52

.

Commenting on the economic function of trust sales

(wadī„ah, tawliyah, murābaah) Abraham Udouitch writes:

The chief concern is to avoid any fraud on the part of the

seller by setting out detailed guidelines regarding the

considerations that are to enter into determining the cost

of any item. Foremost among these is the price paid by

the seller for the goods in question. In addition, a variety

of expenses connected with the maintenance,

improvement and transport of the goods may be included

in the cost, which forms the basis of the murābaah sale.

The custom of the merchants served as the criterion for

determining exactly which expenses were to be included.

The general rule emerging from the numerous cases

discussed is that money expended directly on the goods

or on services indispensable to their sale (e.g., brokerage

fee) may be included, whereas the personal expenses of

the merchant and other expenses not directly involved

with the goods are not to be figured into the stated

original cost. As an additional protection to the

consumer, the seller should avoid any misleading

statement.53

Remedies for Swindled Purchaser

In the event of murābaah purchaser discovering that the price he

has paid to the vendor, was unduly inflated Islamic Law provides

relief to the deceived purchaser. The remedies suggested by

different schools of law are as follows:

Opinion of the anafī Jurists

In such a case the purchaser would have to make up his mind

either to accept the sale at the stated price or rescind it and take his

52

Marghīnānī, al-Hidāyah, vol. 3, p. 56. 53

Udovitch, the Partnership and Profit in Medieval Islam, p. 220.

Contract of Sale

216

money. But if the subject matter is destroyed in the hands of

purchaser or he consumes it, he would lose his right to revoke

contract. According to Imām Abū Yūsuf the murābaah purchaser

has no choice except to devalue undue increase.54

Opinion of the Malikī Jurists

The purchaser would have right either to keep the murābaah

object in consideration of its real or to relinquish the object of the

transaction unless the murābaah vendor forces him to keep it at

the real price.55

Opinion of the Shāfi„ī School

Two opinions are attributed to Imām Shāfi„ī:

(i) He has the option either to revoke contract or to take undue

increase and keep the object.

(ii) He has no option other than to keep it at real price after

devaluation of undue increase. 56

Conditions of Murābaah

Following are conditions of murābaah contract are as follows:57

1. Disclosure of original price:

It is necessary for the validity of the murābaah transaction that

the second purchaser (murābaah purchaser) should have

knowledge of the original price. This means that the seller should

disclose price of the commodity. If the price is not disclosed in the

session of contract, and contracting parties leave the majlis, the

contract will be invalid.

2. Fixation of Profit:

The profit should be fixed and added to the cost price and be

mentioned in the contract.

54

Sarakhsī al-Mabsū, vol. 13, p. 86. 55

Ibn Rushd, Bidāyat al-Mujtahid, vol. 2, p.162. 56

Ibid. 57

See Zuaylī, al-Fiqh al-Islāmī ,vol. 4, pp. 704-706.


217

217

3. Ascertainment of price:

Murābaah is valid only where the exact cost price can be

ascertained. If the exact cost is not known, the commodity cannot

be sold on murābaah. Instead it will be sold without reference to

the cost. This is applicable to cases where a person has purchased

two or more things in a single transaction, and he does not know

the price of each object separately.

4. Validity of first contract:

The first contract should be a valid contract. But if the first

contract is fāsid, i.e., irregular, then the second sale is not

permitted on the basis of murābaah because the murābaah is

resale of a thing for similar to its first price with the addition of

profit, and the irregular sale is not allowed with the stated price. It

is allowed only with the legal value, i.e., the market price.

Expenses in relation to Murābaah

The opinion of Muslim jurists is divided as to what expenses can

be added to the price and constitutes a basis for the calculation of

profit.58

The Mālikī School

Expenses that can be added to the price are those that have

affected the commodity such as dying or tailoring. The expenses

incurred on services such as the fare for the transporting or storing

the commodities in a warehouse rented for this purpose can be

added to the price but cannot be considered for the purpose of

calculating profit.59

The anafī School

All the expenses which are accepted normally by commercial

practice can be added to the cost price whether such expenses have

affected the commodity itself (e.g. dyeing or tailoring) or were

58

Nabīl āli, Unlawful Gain and Legitimate Profit in Islamic Law, p.

118. 59

Ibn Rushd, Bidāyat al-Mujtahid, vol. 2, p. 161.

Contract of Sale

218

incurred on account of such commodity (e.g. transporting goods or

paying commission to a middleman).60

The anbalī and Shāfi„ī Schools

All actual expenses incurred as regards the commodity can be

added to capital provided that the murābaah purchaser is made

aware of the amount of these expenses and their origin.61

Modern applications of Murābaah

The Islamic Banks use this technique to finance projects. They

buy commodities for cash and then sell them to a potential client

on cost plus profit principle on deferred payment basis. In Islamic

Banks murābaah is practiced in the following way:

(i) The client approaches the bank with the request to purchase

for him certain goods. He also provides the description of the

required goods.

(ii) In case the bank agrees to his request, it asks the client to give

an undertaking to purchase the goods with a stated profit

margin. The banks can enter into an actual sale agreement

with the client if the commodity is owned by the bank.

(iii) After signing the “undertaking for purchase”, the bank makes

purchase of required goods.

(iv) After the bank has purchased goods and taken possession of

them, it enters into a murābaah contract with its client. The

contract includes mark-up over the cost of goods and the

schedule of payment. The bank hands over goods to the client

in lieu of cheques bearing future dates according to the

payment schedule.

(v) In order to secure the payment of price, the bank may ask the

buyer to furnish a security in the form of a mortgage.

(vi) In case of defect in the commodity discovered later on, the

buyer can return it to the bank and claim re-imbursement of

60

Kāsānī ,Badā‟i„ al-anā‟i„, vol. 5, p. 223. 61

Ibn Rushd, Bidāyat al-Mujtahid, vol. 2, p. 161.


219

219

what he has paid.62

In order to avoid any ribā element, the

bank provides that the agreement of the bank and the actual

execution of buying do not contribute any legal obligation on

the partner to buy. Hence the risk is still that of the bank.

Until the partner fulfills his original promise of re-buying the

commodity, the risk remains with the bank, which justifies

the profit.

Status of promise in Islamic Law

Here a question arises as to whether such undertaking or promise

to purchase is binding on the client. Muslim jurists have provided

different answers to this question:

1. Shfi„ī and anbalī jurists are of the view that promises are

not mandatory. They represent just a moral obligation on un

promisor to fulfill his promise.

2. The Mālikī jurists regard promises as binding. This view is

attributed to Ibn al-„Arabī and Ibn Shubramah.

3. The anafī jurists acknowledge the validity of bay„ al-wafā'

which establishes the fact that the anafīs also favour the

concept of the binding nature of promises. In bay„al-wafā‟

the purchaser of an immovable property undertakes that he

will return it to the seller if he (the seller) returns price to

him. Such a promise is binding on the purchaser63

.

The Islamic Fiqh Academy has made the promises in

commercial dealings binding on the promisor with the following

conditions:

(a) It should be one-sided promise.

(b) The promise must have caused the promisee to incur

some liabilities.

c) If the promise is to purchase something, the actual sale

must take place at the appointed time by the exchange of

62

Shanqīī, „Uqūd Mustadathah Madinah: Maba„ah al-„Ulum wa al-

ikam, 1992 ,p.381. 63

Ibn Juzy, al-Qawānīn al-Fiqhiyyah, p. 258, Ibn Qudāmah, al-Mughnī,

vol. 4, pp. 17-195.

Contract of Sale

220

offer and acceptance. Mere promise itself should not be

taken as the concluded sale.

(d) If the promisor backs out of his promise, the court may

force him either to purchase the commodity or pay actual

damages.64

Islamic banks deal with this issue in two different ways. In

Dār al-Māl al-Islāmī the customer requests the bank to purchase

the goods and submits intent to buy same on arrival; this promise

is binding. In the Kuwait Finance House the customer gives a non-

binding promise to buy the commodities that were purchased by

the Kuwait Finance House.

Murābaah Practices in Pakistan

In Pakistan murābaah is used as credit vehicle. It enables a buyer

to finance his purchase with deferred payment as against accepting

a mark-up on the market price of the commodity. The Muslim

Scholars look at murābaah as practiced in Pakistan with

suspicion. They see in it the element of ribā since the bank does

not purchase commodity for the client, it only provides finance for

the purchase of needed commodity against pre-determined profit.

It also does not bear any risk while according to Islamic Law it is

the element of risk, which makes the financial institution entitled

to the profit.

Modes of Murābaah

Following are some forms of murābaah practiced by commercial

banks in Pakistan.

First Mode: Purchase of goods by Banks and their sale to clients

at appropriate mark-up in price on deferred payment basis:

This technique of mark-up is applied for financing the

requirements of trade, commerce and industry. Under the

technique of mark-up, a sale transaction is arranged at price

mutually agreed upon between the buyer and seller. The sale price

consists of the cost of goods plus margin of profit and the same is

64

Resolution No.2 and 3, Islamic Fiqh Academy, See Academy„s Journal

No.5, vol. 2, p. 1509.


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221

payable by the buyer on deferred basis either in lump sum or in

installments.

While sanctioning the amount of finance, the bank takes into

consideration the credit worthiness, dealings and cash flow of the

customer. It also studies the marketability of the commodities or

goods manufactured and securities offered to ensure that finances

made available to him are properly utilized and finance is received

back by the bank on due date as per stipulations of the sanction.

The mark-up is calculated for the period from the date of first

debit to the date of expiry of the limit plus 210-days. The mark-up

amount as calculated above when added to the amount of finance

becomes the marked up amount, i.e., sale price at which the goods

have been sold by the bank to the client.

Sharī‘ah appraisal

The mode mentioned above is, infact, combination of bay„ al-

murābaah and bay„ al-mu‟ajjal, because the bank charges an

increase over and above the original price which is payable in

future. It is murābaah because the buyer relying on the words of

seller gives increase over and above the cost to the seller. It is bay„

al-mu‟ajjal also because the payment is made on specified dates in

future. It is permissible for seller in Sharī„ah to charge increase in

price over the spot market rate. Modern murābaah transactions

normally take place on the basis of order supply in which the order

supplier is not required to disclose his purchase price.

The Muslim scholars in Pakistan entertain some doubts about

the validity and legitimacy of mark-up financing. The objections

raised by the scholars are as follows:

1. The bank does not purchase the commodity needed by the

client. It only provides him finance for its purchase. This fact

is confirmed by the state bank‟s gazette of Jan. 1981, which

states that: “the bank will not provide the customer rice, but

will give him its market price and it will be presumed that the

bank has itself purchased required quantity of rice from the

market and sold it with profit margin to the customers, after

90-days from the date of purchase”. Besides, the banks use

the words of “amount of finance” for purchase price in their

Contract of Sale

222

agreements, which refer to loan provided by the bank to the

client. All this confirms that it is not a sale, instead, it is

mark-up financing.

2. The Bank charges a predetermined increase over the amount

of finance, which makes murābaah similar to charging

increase over and above the amount of loan.

3. It does not bear any risk.

4. Unlike other Islamic Banks where two agreements are made

with the client and where an actual sale contract is concluded

only when the commodity is purchased by the bank and taken

possession of, the Pakistani banks make one agreement which

contains the provisions of amount of finance, i.e., purchase

price, added profit margin, sale price and mode of payment.

Thus, the bank is not concerned with the purchase of

commodity.

5. Murābaah financing represents sale of a thing, which is not

owned by the seller and that, is prohibited in Islam.

Second Mode: Purchase of movable and immovable property by

the--banks from their clients with buy-back agreement or

otherwise:

Under the system of mark-up based financing with buy-back

arrangement, simultaneous transactions of purchase and re-

purchase of movable and immovable, property are made between

the bank and client at a mutually agreed price for a specified

period. The bank purchases an asset, movable or immovable at an

agreed price, which the party agrees to re-purchase at a marked-up

price payable on deferred basis either in lump sum or in

installment.

The technique of bnuy-back arrangement is applicable where

tangible security in the shape of movable/immovable property is

offered by the client for obtaining finance from the bank. The

banks use this mode to meet working capital requirements of

factories. They also provide finances to pay for salaries, energy

bills and overhead costs. The mode for obtaining finances for the

above mentioned purpose is that the client sells some of his


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223

durable goods to the bank at certain price and receives required

finances and then immediately purchases them from the bank at a

higher price to be paid on a specified date in future. This mode is

also employed for the purchase and construction of property.

I. Purchase of Property:

The Following steps are taken for the purchase of property:

(i) The customer negotiates the purchase of property from

its owner, i.e., the seller for a price known as “property

cost”.

(ii) The customer sells the said property for a known sum

paid immediately on registration of its conveyance from

the seller to the customer.

(iii) The customer simultaneously buys back the same from

the bank for a sum greater than the sum at which he sold

to the bank. The amount is paid in monthly installments

commencing one month after the date of registration of

the conveyance from the seller to the customer and

thereafter at the end of each succeeding month.

(iv) The customer declares that he has examined the said

property and assures the bank that the property cost is

fair and reasonable and the said property is free from any

structural or other defects and that the title thereto is

clear and unencumbered.

(v) The customer obtains possession of the said property

from the seller on or before registration of conveyance.

II. Construction of Property:

The procedure for obtaining finance for he purpose of construction

of property is as follows:

(i) The customer desirous of constructing a house

approaches the bank. He submits a building plan

approved by the authorities concerned.

(ii) The parties fix the property cost, i.e., the cost of a

completed house that includes cost of land and building.

Contract of Sale

224

(iii) The bank buys from the customer all building materials,

fixtures and fittings required for constructing the said

property for a certain amount known as the bank‟s

investment.

(iv) Bank‟s Investment ranges between 30% to 60% of the

value of the said property erected by use of the building

materials as is certified by an architect nominated or

approved by the bank.

(v) The customer is deemed to have immediately bought

back the building materials for the sum that is higher

than the price at which bank has purchased building

material from the customer. This amount, which is the

buy-back price for the customer, is paid in monthly

installments commencing one month after the date of

completion of construction.

Calculation of Mark-up

The mark-up is calculated for the period from the date of first

debit to the date of expiry of the limit plus 210-days (cushion

period). The mark-up amount as calculated above when added to

the amount of finance becomes the marked up amount, i.e., at

which the security offered has been sold by the bank to the client.

The sale price (marked-up price) payable by the client to

bank comprises the following:

(i) amount of finance,

(ii) mark-up for the period of finance,and

(iii) mark-up for 210-days.

The amount of installment payable is calculated as under:

(i) amount of finance,

(ii) plus mark-up (on reducing balance method), for the

period of financing,and

(iii) these are divided by total number of installments.

Sharī‘ah Appraisal

The buy-bank practice has been a target of grave criticism by

religious scholars. They consider it a subterfuge to circumvent the


225

225

prohibition of ribā. In buy-back arrangement no real sale takes

place. Instead the parties deal in usurious loan transaction. It is a

fictitious deal that ensures a predetermined profit to the bank

without actually dealing in goods, or sharing any real risk. The

present practice of buy-back is infact a form of prohibited sale

called bay„ al-„īnah in Islamic Law.

Bay„ al-„īnah means to sell commodity on cash and then buy

it back at a higher price to be paid on some specified time in

future. It is called „inah because the „ayn (substance) sold by the

seller returns to him. Mālik and Amad ibn anbal prohibited this

transaction because it is a legal device for dealing in ribā 65

. They

argue on the basis of the tradition of „Ā‟ishah (God be pleased

with her) when Umm Muibbah informed her that she had a slave-

girl whom she sold to Zayd ibn Arqam for eight hundred dirhams

till he could pay. He then decided to sell her. So, she bought her

back for six hundred. „Ā‟ishah said, “It was bad what you sold and

bad what you bought. Make it known to Zayd that his jihād

alongside the Messenger of Allah (s.a.w.s) has been nullified,

unless he repents”. She said to her, “What if I should just take my

capital from him”? She replied, “Those who after receiving

direction from their Lord, desist, shall be pardoned for the past”.66

Bay„ al-„īnah is prohibited because it is subterfuge for usurious

loan. All the Muslim jurists are unanimous on the point that the

intention of the contracting party by making a contract should be

in harmony with the intention of the Lawgiver. If the intention of

the contracting party is inconsistent with the intention of the

Lawgiver, his contract will be invalid. Ibn al-Qayyim says, “The

proofs and rules of the Sharī„ah reveal that intentions are taken

into account in a contract and that affect validity and invalidity,

and lawfulness and unlawfulness of the contract. A contract

become sometimes becomes lawful and sometimes unlawful with

the variation of intention and object, as it becomes valid

sometimes and some times invalid with its variation”.67

65

Al-Murābaah fī Bank Dubai al-Islāmī p. 15. 66

Qurubī, al-Jāmi' li Akām al-Qur'ān vol. 3, pp. 359-61. 67

Ibn Qayyim, I'Iām al-Muwaqqi'īn, vol.3, p.96.

Contract of Sale

226

VII. Bay' al-Mu'ajjal (credit Sale):

There is no disagreement among the jurists that bay„ al-mu‟ajjal is

valid in the Sharī'ah, firstly because it includes in the generality of

trade which is permissible in the Sharī'ah and secondly because

there is a proof from the Sunnah that Holy Prophet (s.a.w.s.)

purchased a quantity of grain from a Jew on the basis of deferred

payment and he pledged his armour by way of security. But there

is no agreement or consensus of opinion among the jurists on the

point whether a seller can increase a price of a commodity for

deferred payment as compared to its spot price or not. A group of

Muslim Jurists regards such increase permissible because it is

against the commodity and not against money. An increase

against late payment is ribā only where the subject matter is

money on the both sides. They, therefore allow a seller to fix two

prices of a commodity that is cash price and credit price and give

an option to a buyer to buy a commodity at any of the two prices.

Thus, it is permissible in their view to say to a prospective buyer

that I sell you this item for Rs. 100/- cash in hand, and Rs. 150/-

on the credit of one year. A group of modern scholars entertain

some doubts regarding the validity of this transaction. They put

forth following arguments to prove that such transactions are not

recommended by the Sharī'ah.

1. There is no authority from the Qur'ān and the Sunnah to

prove the permissibility of increase in price for deferred

payment.

2. If a transaction on deferred payment of price is valid in

Sharī'ah it does not mean that charging of high price than the

prevalent market price of goods is also permitted.

3. In Islamic Law the basis to be considered in the contracts is

the meaning and underlying objective of the contract, not its

form or words. It is for this reason that Islamic Law does not

regard bay' al-wafā as real sale. It is infact a pledge. In

credit sale the objective of the seller is to make profit from

the time given to the purchaser. Thus, it is substantially not

different from ribā transaction.


227

227

4. The agreement of the purchaser to pay a price higher than the

spot market rate cannot justify the transaction, because he

agreed to this price owing to his inability to pay cash. Thus,

such agreement does not represent a real consent of buyer.

Besides, it amounts to exploitation of the need of a the buyer.

5. The profit charged by a vendor should not be exorbitant;

otherwise it would fall under ghabn fāish, which renders a

contract invalid. The price charged by a seller in a credit sale

is higher than that prevalent in the market. Therefore, it

should be treated as a case of ghabn fāish, which is a cause

of the invalidity of contract. It has been mentioned earlier

that ghabn fāish refers to a loss, which cannot be estimated

by the experts. It also refers to a situation where a seller

charges an exorbitant profit from the buyer.

6. The cash price fixed by a seller already contains a profit

margin for the seller. Now the further increase in the price

for deferred payment is only against time. If, for example a

seller says to a buyer that the cash price of goods is Rs. 100

and credit price is Rs. 150/-, it is clear that the increase of Rs.

50/- is against nothing but the time.

In the sharī'ah the intentions and the objectives underlying a

transaction occupy a significant place. They are a real touchstone

to determine whether or not a transaction is Islamically acceptable.

Charging a higher price for deferred payment may not be in

technical sense an act of ribā, but keeping in view the objective

and underlying intention, there remains hardly any doubt that it is

similar to ribā. Such practice promotes usurious mentality and

opens a back door for ribā. Bay„ al-mu‟ajjal is infact a method to

provide relief to a purchaser who does not have enough resources

to make immediate payment. It is in no way a means to exploit

the hardship of buyer and earn profit. The Sunnah of the Holy

Prophet (s.a.w.s.) permits credit sale but there is no proof in the

Sunnah that charging a price higher than prevailing market is also

permitted.

Therefore, the accurate legal position is that the price of

commodity in a deal on deferred payment should be the same as

Contract of Sale

228

being charged by the seller for cash sales. In other words it should

be according to prevailing market price.

Conclusion

◘ Sale is an exchange of a useful and desirable thing for a

similar thing by mutual consent for the alienation of property.

◘ In Islamic Law property is divided into movable and

immovable, fungible and non-fungible, and finally into

determinate and indeterminate property.

◘ Islamic Law has prohibited all sale contracts, which contain

the element of gharar (uncertainty) such as mukhāarah,

muāqalah,and mulāmasah.

◘ Important kinds of sale are:

♦ Salam

♦ arf

♦ Murabaah

♦ Bay„ mu‟ajjal

♦ Istinā'

◘ Salam is a sale in which the price is paid in advance and

articles are delivered on future date. It is affected on the

commodities, which can be precisely determined in terms of

quality and quantity.

◘ arf refers to sale of money for money. The counter values in

this contract must be delivered and taken possession of in the

session of contract.

◘ Islamic Law treats todays paper currency as real money for

all the practical purposes.

◘ Istinā„ consists in ordering an artisan or manufacturer to

make certain goods answering a given description.

◘ Murābaah is a transaction in which a vendor sells an article

for the cost price in addition to a certain stated profit.

◘ Murābaah is a trust sale in which the buyer depends and

relies upon the integrity of the purchaser as regards the cost

he mentions to the buyer.


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229

◘ Buy-Back agreements as practised in Pakistan do not

conform to the teachings of the Sharī'ah.

Chapter-15

Contract of Ijārah (leasing) Definition

The word ijārah literally means to give something on rent. In the

language of Law it means lending of some object to somebody in

return for some rental against a specified period. It can also be

described as sale of usufruct for consideration. It includes letting

things moveable and immovable for hire and rendering services

such as custody of property and professional services.

The word ijārah is used for two different situations. In the

first place, it means to employ the services of a person on wages

given to him as consideration for his hired services. The employer

is called musta‟jir while the employee is called ajīr. The second

type of ijārah relates to the usufructs of asset and properties, and

not to services of human beings. ijārah in this sense means to

transfer the usufruct of a particular property to another person in

exchange for a rent claimed from him. In this case, the term ijārah

is analogous to the English term leasing. Here the lessor is called

mu‟jir; the lessee is called musta‟jir and the rent payable to the

lessor is called ujrah.1

The jurists have formulated various definitions of ijārah

having regard to its principle features.

The definition of ijārah in different schools is as follows:

anafī School

It is contract on usufructs for a known consideration.2

1 Taqī „Usmānī, An Introduction to Islamic Finance, pp. 156,157.

2 Kāsānī, badā‟i„ al-anā‟i„, vol. 4, p.174; Zayla'ī, Tabyīn al-aqā‟iq

vol. 5, p.105.


232

Shāfi„ī School

It is a contract on a known and permissible benefit in exchange of

a known return.3

Mālikī School

It is an alienation of lawful usufructs for a fixed charge for a fix

period. For the Mālikī Ibn Rushd says; ijārah resembles a sale

contract whereby price and use are exchanged.4

anbalī School

Ijārah is contract for the lawful and defined use of a lawful and

determined corporeal object for a specific period of time. It is also

defined as providing a defined work for a fixed price.5

Features of Ijārah

1. The preceding definitions set the following features of ijārah.

The purpose of ijārah contract is alienation of usufructs

unlike contract of sale, which aims at alienation of property.

2. The benefits to be derived should be known and specified.

3. The benefits, which are the subject matter of contact, should

be permissible in the Shrī„ah. Thus, the hiring of a house for

manufacturing wine is not permissible. Similarly, hiring a

woman for the purpose of singing would also be against

Islamic Law.

4. The rent or compensation should be specifically fixed.

5. The period of contract should also be specified in the

contract.

Legitimacy of Ijārah

The legality of ‟Ijarah is established by the Qur‟ān, the Sunnah

and ijmā„.

3 Shirbīnī, Mughnī al-Mutāj, vol. 2, p.332.

4 Ibn Qudāmah, al-Shar al-Kabīr, vol.4, p.2; Ibn Qudāmah, al-

Mughnī vol. 5, p. 398. Ibn Rushd, Bidāyat al-Mujtahid,

vol. 2, pp.219-220. 5 Bautī ,al-Raw al-Murbi„,p. 214.

Contract of Ijrah

233

233

Qur‟ān

(i) Allah says: “And if they suckle your (offspring) give them

their `recompense‟.6

(ii) “Said one of the (damsels): “O my father: engage him on

wages. `Truly the best of men for thee to employ is the man

who is strong and trusty”.7

Sunnah

(i) Said the Holy Prophet (s.a.w.s). "Give wages of the person

hired before his sweat dries up".8

(ii) “If some one hires a person, let him inform him about the

wages he is to receive”.9

(iii) Harat Sa„d ibn Abī Waqqās reported that in the age of the

Holy Prophet (s.a.w.s) the owners of the land used to let their

lands on rent.10

Ijmā‘

All the Companions of the Holy Prophet (s.a.w.s) unanimously

held that ijārah is a lawful contract. They themselves practiced all

lawful forms of this contract. In the Sharī„ah permissibility of

ijārah has been constructed on istisān, which is a departure from

a rule of precedent. According to a general rule of Islamic Law of

contract, an object, which does not exist at the time of contract,

may not be sold. However, ijārah is valid despite its being sale of

the usufructs, which are non-existent at the time of contract.

Analogy would thus invalidate ijārah, but istisān exceptionally

validates it on the authority of the Sunnah and ijmā„.

Imām Sarakhsī stating the lawfulness of this contract writes:

The contract and dealings practiced before Islam are valid

practices for us also in the absence of any text disapproving them.

6 Qur‟ān,65: 6.

7 Qur‟ān,28: 26.

8 an‟ānī, al-Salām, vol. 3. p. 81.

9 Shawkānī, Nayl al-Awār, vol. 5, p. 292.

10 Nasā'ī, Sunan (Urdu) Karachi: Qur‟ān Mahal, n.d. vol.3, p.60.


234

The Holy Prophet (s.a.w.s) was sent as Prophet and he saw the

people practising ijārah and he approved that practice.11

Kinds of ijārah

There are two main kinds of ijārah, namely ijārat al-ashyā‟ and

ijārat al- ashkhā..

1. Ijārat al-ashyā‟ refers to hiring of things such as houses,

shops, lands, animals and beasts etc. This is also known as

ijārat al-„ayn.

2. Ijārat al-ashkhā refers to hiring of services, such as to hire a

painter to paint a house. This kind is also called ijārat al-

dhimmah.12

The person hired for rendering services is called ajīr who is

either ajīr khā, the employee or ajīr mushtarak, i.e., independent

contractor. ajīr khā renders service for one person for a fixed

period while ajīr mushtrak works for a large number of people like

tailor, laundryman, and Ironsmith.

Conditions of ijārat al-ashyā‘

1. The subject of ijārah must have a valuable use. Therefore,

things having no usufruct at all cannot be leased.

2. It is necessary for a valid contract of lease that the corpus of

the leased property remains in the ownership of the seller, and

only its usufruct is transferred to the lessee. Therefore, the

lease cannot be affected in respect of money, eatables, fuel

and ammunition, because their use is not possible unless they

are consumed. If anything of this nature is leased out, it will

be deemed to be a loan and all the rules concerning the

transaction of loan shall accordingly apply. Any rent charged

on lease shall be treated as an interest charged on a loan.13

3. As the corpus of the leased property remains in the ownership

of the lessor, all the liabilities emerging from the ownership

11

Al-Sarakhsī, al-Mabsū, vol. 15, p. 74. 12

Al-Jazīrī, Kitāb al-Fiqh „alā al-Madhāhib al-Arba„ah, Beriut:

vol. 3, p. 110. 13

Taqī „Usmānī, an Introduction to Islamic Finance, p. 157.

Contract of Ijrah

235

235

shall be borne by the lessor, but the liabilities referable to the

use of the property shall be borne by the lessee.

Example

A has leased his house to B. The taxes referable to the property

shall be borne by A, while electricity bills and all expenses

referable to the use of the house shall be borne by B, the lessee.14

4. The subject-matter of ijārah, namely, the usufruct should be

known, and ìdentified. There should not be any uncertainty

and vagueness about the usufructs, which may lead to discord

and dispute among the parties. The lessor should specifically

mention the subject-matter. It is not permissible to lease an

unspecified thing. Thus if a person says: “I rented you one of

these two houses”, the contract would be invalid because the

subject-matter in this case is unknown and unidentified.15

5. The leasing period should be fixed, whether, it is long or

short. It is the viewpoint of the majority of the Fuqahā‟. Imām

Mālik, on the other hand maintains that a long period for the

use of usufructs is not advisable, because it may cause dispute

and tussle.16 As regards property of orphans and waqf, the

anafī jurists hold that long period of lease of these

properties is not permissible so that the lessee may not claim

his ownership over them because of long possession. They

propose that it should not be hired out for more than three

years.17

6. The subject-matter should be something that can be actually

delivered. Thus, the renting out of a stray animal is not

permitted.

7. The object and purpose of the contract should be lawful.

Thus, it is not permissible to hire a house for the purpose of

gambling or manufacturing wine.

14

Ibid. 15

Kāsānī, Badā‟i„ al-anā‟i„, vol. 4, p. 180. 16

See Shirbīnī, Mughnī al-Mutāj vol. 2, p. 349; Ibn Qudāmah, al-

Mughnī, vol. 5, p. 401. 17

Ibn „Ābidīn, Radd al-Mutār, vol. 5, p. 2-3.


236

8. The article to be hired should be physically fit for hire.

9. In the contract of hiring a land, the use of land should be

specified whether it is for cultivation or construction of

building.

10. If a beast of burden is hired for carrying a burden, the

quantity and quality of burden, the destination and the period

for which it is required should be stated. If the lessee loads

with the burden more than the specified, he will be called to

compensate. Similarly, if he uses the animal in an unusual

manner, which causes its death, he will be regarded ghāib

(usurper) and called for indemnification.18

11. The lessee cannot use the leased asset for any purpose other

than the purpose specified in the lease agreement. If no such

purpose is specified in the agreement, the lessee can use it for

whatever purpose it is used in the normal course. However, if

he wishes to use if for an abnormal purpose, he cannot do so

unless the lessor allows him in express terms.

12. The lessee is liable to compensate the lessor for every harm to

the leased asset caused by any misuse or negligence on the

part of the lessee.

13. The leased asset shall remain in the risk of the lessor

throughout the lease period in the sense that any harm or loss

caused by the factors beyond the control of the lessee shall be

borne by the lessor.

14. A property jointly owned by two or more persons can be

leased out, and the rental shall be distributed between or

among all the joint owners according to the proportion of

their respective shares in the property.

15. A joint-owner of a property can lease his proportionate share

to his co-sharer only and not to any other person.

16. Rent to be paid should be a lawful thing and known.

18

Zayla„ī, Tabyīn al-aqā'iq, vol. 5, p. 113.

Contract of Ijrah

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237

17. Rent should not be paid in the same genus or specifies. Thus,

a house cannot be rented in exchange of house. This

condition is peculiar to the Hanafi School.19

Conditions of ijārat al-ashkhā

1. In the contract of hiring services, the work required to be

performed should be specifically fixed such as the carriage of

goods, or building house etc.

2. Performance or work should not be prohibited in the

Sharī„ah. Thus, it is not permitted to hire a magician to teach

magic, or a singer for the purpose of singing. Similarly, it is

not permissible to hire the services of a person to kill another

person or torture him, because they are acts of sin and

disobedience, hence prohibited in the Sharī'ah.

3. The service required to be rendered should not be a

mandatory duty. It is, therefore, not allowed for a person to

hire a person to pray, to perform ajj, to lead prayer, to teach

the Qur‟ān. because they are mandatory duties, so the worker

is not entitled to wages if he is hired for any of them.

As regards charging fee for teaching the Qur‟ān or the

principles of faith, accepted rule of the anafī School is that no

one is allowed to charge any fee for teaching these subjects

because it is held to be a form of worship (ibādah). This was the

ruling of early jurists. The jurists of subsequent ages, when they

saw that the people were reluctant to teach the Qur‟ān gave a

fatwā in favour of charging fee for teaching the Qur‟ān. They

considered it necessary in order to encourage the teaching of

Islam.20

4. The contract of ijārah should not comprise any condition

according to which the rent or wages might be paid from the

article manufactured, or wrought upon the rental goods.

19

Kāsānī, Badā‟i„ al-anā‟i„, vol. 4, p. 194. 20

Zayla„ī, Tabyīn al-aqā‟iq, vol. 5, p. 124.


238

Some other rules concerning ijārah

1. The property hired is a trust in the hands of the lessee. Thus,

if it is destroyed without any negligence on the part of the

lessee, he will not be responsible for that loss or damage.

2. The lessee is required to exercise maximum care of property

and use it properly. An improper and unusual use of the

property will change his status from trustee to usurper, and in

case any destruction takes place, he will be liable for

compensation.

3. Rent of hired property becomes due:

i) on the attainment of usufruct of the hired property or

goods;and

ii) ability of the lessee to use the usufruct of hired goods.

4. Ijārah is a binding and irrevocable contract. Thus, it cannot

be revoked unilaterally.

5. Unlike the sale the contract, ijārah can be enforced from

some specified future date. Thus, it is permissible to say that

this contract will be effective from Jan. 1, 2000.

6. Ajīr mushtarak (Independent Contractor) such as tailor or

shoemaker will be held accountable for the loss of goods in

his custody regardless of whether they are destroyed by his

fault or without his fault. This ruling has been given by the

Fuqahā‟ on the grounds of public interest so that trustees and

tradesmen exercise greater care in safeguarding people‟s

properties.21

Modern Applications of ijārah

There are two main types of ijārah (leasing) practiced by the

modern banks namely finance lease and operating lease.

21

Kāsānī, Badā‟i„ al-anā‟i„, vol. 4, p. 210, Ramlī, Mugnī al-Mutāj,

vol. 2, p. 35, Ibn Qudāmah, al-Mughnī, vol. 5, p.487.

Contract of Ijrah

239

239

1. Finance Lease:

The finance lease is based on a contract between the lessor and the

lessee for hire of a specific asset selected from a manufacturer or

vendor of such assets by the lessee. The lessor retains the

ownership of the asset and the lessee has possession and use of

asset on payment of specified rentals over a period. Though the

lessor is the legal owner, the lessee is given the exclusive rights to

the use of the asset for the duration of the contract. The rentals

during the fixed primary period are sufficient to amortize the

capital outlay of the leasing company and provide an element of

profit. The primary period is closely related to the estimated useful

life of the asset and the lessee is normally responsible for all

operating costs such as maintenance and insurance. The lessee has

also the options for a secondary period of lease in which the

rentals are reduced to nominal amount. The period of lease usually

ranges from5 to 15 years depending on the useful life of the

asset.22

Since all the risk is borne by the lessee, instead of lessor in

finance lease, it makes the contract objectionable from the

Sharī„ah point of view. In the Sharī„ah risks of damage, and

obsolescence is exclusively borne by the lessor. Besides, the

leased item or equipment cannot be returned to the lessor during

the primary period of lease. The lessee cannot cancel the contract

even if he finds the item unuseful during the term. The fact that the

rent is related to the approximate useful life of the item and that

the lessor recovers the entire cost of equipment plus some profit,

make this contract doubtful from Islamic point of view.

2. Operating Lease:

This is “non-full payment” lease as rentals are insufficient to

enable the lessor to recover fully the initial capital outlay. The

residual value is recovered through disposal or re-leasing the

equipment to other users. In this lease major consideration is given

to the use of equipment. Unlike the finance lease system, the

lessee can cancel the contract before it expires without paying any

22

Council of Islamic Ideology, Elimination of Ribā from the Economy

and Islamic Modes of Financing, 1991, p. 13.


240

penalty. Under this arrangement the risk of damage and

depreciation is borne by the lessor.

Ijārah in Islamic Banks

1. Ijārah wa Iqtinā’ (Hire-purchase):

It is a combination of leasing movable or immovable property with

granting the lessee an option of eventually acquiring the object of

the lease.23 Ijārah wa‟Iqtinā‟ is a popular mode of financing

practised by Islamic financial institutions. It is used in the

following manner.

The financial institution rents a movable or immovable

property to one of its clients who pay an agreed sum in

installments over an agreed period into a saving account held with

the same institution. The lessor who is usually the muārib invests

these installments in muārabah venture for the client‟s account.

As, when the amount of deposits and accrued income on such

deposits, equal the aggregate amount of the then outstanding lease

payments, the lease is terminated and the lessee becomes the

owner of the asset.

Thus, ijārah wa iqtinā is a lease agreement combined with an

obligation to the lessee to purchase the asset during the lease or at

the termination of the lease.

2. Direct leasing:

This is a mode whereby the Islamic banks allow the customer to

use the capital assets owned by the banks for a limited period of

time ranging from a few days to a few months depending upon the

type of asset in question. In return the lessee pays a monthly or

annual rental fee.

Conclusion

◘ Ijārah is a contract for usufruct for a known consideration.

Ijārah includes letting things for hire and rendering services.

◘ The subject-matter of ijārah should be permissible thing or

act.

23

Nabīl A. āli, Unlawful Gain and Legitimate Profit in Islamic Law,

P.122.

Contract of Ijrah

241

241

◘ It should be known and identified.

◘ The rent or compensation should be specified fixed.

◘ The property hired is held to be a trust in the hands of lessee.

Thus, if it is destroyed without any negligence on his part, he

will not be held responsible for that loss or damage.

◘ Ajīr mushtarak (Independent Contractor) is held accountable

for the loss of goods in his custody regardless of whether they

are destroyed by his fault or without his fault.

◘ There are two main types of ijārah (leasing) practiced by the

modern banks namely, finance lease and operating lease.

Finance lease is objectionable from the Sharī„ah point of

view because in this form of lease all the risk is borne by the

lessee.

◘ Hire-purchase is a combination of leasing property and

granting the lessee an option of eventually acquiring the

object of the lease. It is permissible in the Sharī„ah.

Chapter-16

Contract of Mushārakah

(Partnership)

The word sharikah is used in the literal sense to mean mixing or

mingling. Sharikah or Partnership implies an underlying idea of

mixing shares in such a way that one of them cannot be

distinguished from the other. In its technical sense, sharikah

signifies a particular relationship that exists between two

contracting parties, although there may be no actual mixing or

mingling of shares.

Definition

The Muslim jurists have offered various definitions of partnerships

with regard to its important features.

Mālikī definition

“It is a permission from each of the partners to the other for

appropriation and disposition while retaining the right to transact

personally (in such wealth). ”

1

anbalī definition

“Sharikah is the participation of two or more persons in the

entitlement of a thing and disposition.”2

1Ibn Qudāmah, al-Shar al-Kabīr vol. 3, p.348.

2Ibn Qudāmah, al-Mughnī vol 5, p.1.


244

Shāfi„ī definition

“Sharikah is an establishment of a right in a single thing held in

common between two or more persons”.3

anafī definition

“Sharikah is a contract between two or more people for

participation in capital and its profit.”4

Of all the preceding definitions, the last one may be said to be

the most comprehensive, as it encompasses all the necessary

ingredients of a partnership; namely, agreement, business

involving investment from the partners and sharing of expected

profit.

Definition of Partnership in Law

The Pakistan Partnership Act, 1932 defines partnership as:

“A relationship between persons who agree to share the

profits of a business carried on by all or any of them

acting for all”.5

Following are the main features of modern partnership.

a) Agreement: There must be an agreement between the parties

concerned. Without agreement, partnership cannot be formed.

The agreement may be express or implied. It is however,

preferable to reduce it to writing so that any future dispute

may be settled in accordance with the provisions of the

agreement.

b) Number: There should be more than one person to form a

partnership. However, there is a restriction on the maximum

number of the partners. In case of ordinary business, the

partners must not exceed 20 partners and in case of banking

contracts it must not exceed 10 partners.

c) Business: The object of the formation of partnership is to

carry on any type of business as long as it is lawful.

3 Shirbīnī, mughnī al-Mutāj, vol.3, p.211.

4 Ibn Abidīn, radd al-Mutār, vol.3, p.364.

5Partnership Act 1932, Section 34.


245

d) Profit-Sharing: The basic purpose of the formation of

partnership is to earn profit. The profit is to be shared as

agreed between the partners. If there is no such agreement

they will share profits equally. The contribution towards the

losses will be in the same proportion as the sharing of profits

unless there is contract to the contrary.6

e) Carried on by all or on behalf of all: The business of

partnership is conducted by all the partners or any of them

acting for all. But each partner is allowed to participate in the

management by law.

f) Unlimited liability: Each partner is liable to the full

satisfaction of the liability of partnership jointly and

severally. However, one or some of the partners with the

agreement of other partners may have limited liability.

However, all the partners in a firm cannot be with limited

liability.

g) Investment: Each partner contributes his share in the capital

according to the agreement. Some persons may become

partners without investing any capital to the business. They

devote their time, energy, skill, judgement and ability to the

business instead of capital and receive profit.

h) Transferability of share: The interest of a partner in a firm

cannot be transferred, assigned to a third person without the

consent of other partners.

i) Position of partners: Every partner is an agent as well as

principal to the other partner. In this capacity he can bind the

other partners by his acts as well as will be bound by the acts

of other partners if they were carried out during the normal

conduct of business by his act. In the position of an agent he

can enter into a contract with another person or parties on

behalf of his partner or partners.7

7 Partnership Act 1932 Section 22.


246

j) Duration: Partnership may be for an indefinite period of time.

It may also be for a definite period. Some partnerships are

formed for completion of a single venture.8

Concept of Company in Modern Law

Definition of Company

Company is a voluntary association of different persons created by

law as a separate body for specific purposes. It possesses a

common capital contributed by its members, such capital being

divided into transferable shares. The liability of each such member

is limited to the extent of value of the shares he holds. 9

Characteristics of a company

The following are the main characteristics of a joint-stock

company.

a) Legal Entity: A company is an artificial person, which is

created by law. It is a separate legal entity apart from its

members. It can purchase property or transfer the title of

property or sue in a court of law in its own name.

b) Perpetual existence: The company is a creation of law and it

continues to exist until it is wound up by the legal procedure.

The death or retirement of any member does not affect the

life and existence of the company. Its life is distinct from that

of its members.

c) Limited Liability: The liability of each shareholder is limited

to the extent of his share. Other assets of the members cannot

be taken into consideration for the liabilities of the company.

d) Constitutional Status: A company is person under the law, but

it is not to be considered citizen in the eyes of law.

e) Number of Members: In case of pubic limited company, the

minimum number of members is seven. There is, however, no

restriction on the maximum number of members. In case of

8 Partnership Act 1932, Section 18 & 19.

9See Company Law in Pakistan, 1986. (p.22)


247

private limited company the minimum number of members is

two while the maximum is fifty.

f) Transferability of Shares: The shares of a public company are

transferable. This type of share may easily be purchased or

sold in the stock exchange market.

g) Management: The management of company is centralized in

a Board of Directors who are elected by the general

shareholder. But the shareholders, who are the actual owners

of the company, are not allowed to participate directly in the

management.

h) Nature of Business and Management: The nature of business

is mentioned in the object clause of the Memorandum of

Association, which cannot be changed except by the sanction

of the court. The procedure of management, on the other

hand, is laid down in the Articles of Association.10

Legitimacy of Sharikah

The legitimacy of sharikah as a valid mode of business is

established by the Qur‟ān, the Sunnah and ijmā. Some of the

relevant verses of the Holy Qur‟ān and traditions of the Holy

Prophet are cited in the following lines.

The Qur‟ān Says:

وإن كيي ةا ممن الخل اء ليبغي ب ع هم لى ب عضض إال الذين آمنوا و ملوا الصالحات وقليل ما هم

“And verily, many partners oppress one another, except

those who believe and do righteous deeds, and they are

few.” 11

(i) The Holy Prophet (s.a.w.s.) said that Allah says:

I am the third of the two partners as long as they do

not cheat one another. But when one of them cheats

10

Ibid, pp. 22, 23. 11

Qur‟ān, 38: 24.


248

the other, I leave them” 12

(i.e., they are deprived of

the blessing and favour of Almighty Allah).

ii) The Holy Prophet (s.a.w.s) also said: “Allah Almighty is

with the two partners unless they defraud each other”. 13

(iii) Sharikah business was prevalent in the Arabian

Peninsula at the advent of Islam. The Holy Prophet

(s.a.w.s.) accorded his tacit approval to this practice. He

himself carried on business on the basis of partnership

before his declaration of prophethood.

The validity of sharikah is proved by the consensus of the

Muslim Ummah too. The entire Muslim scholars in all ages had

been in agreement in regard to the validity of sharikah form of

business.

Kinds of Sharikah

There are two main kinds of Sharikah:

1. Sharikat al-Milk (Proprietary partnership).

2. Sharikat al-„Aqd (Contractual partnership). 14

1. Sharikat al-Milk:

Sharikat al-milk is defined by the Majallah, as “the existence of a

thing in the exclusive joint-ownership of two or more persons due

to any reason of ownership, or it is the joint claim of two or more

persons for a debt that is due from another individual arising from

a single cause”. 15

In this type of Sharikah each and everyone has ownership in

every smallest part of the capital. The property, which is difficult

to divide and distinguish, forms the subject matter of a proprietary

partnership. It is of two kinds:

(a) Compulsory partnership: It is a partnership, which becomes

effective without any action on the part of the partners, such

as inheritance.

12

Abū Da‟ūd, Sunan, Kitāb al-Buyū', Bāb al-Sharikah . 13

Ibn Qudāmah, al-Mughnī, vol.5, p.3. 14


Ibid., article 1060.


249

(b). Optional partnership: It is a partnership which becomes

effective through the act of parties e.g. joint-purchase or

joint-acceptance of gift or a bequest, joint seizure of an article

in enemy's country in the course of war or where they unite

their respective properties in such a way that one is not

distinguishable from the other, such as mixture of wheat with

barley. 16

Rules Relating to Sharikat al-Milk

1. Each partner is a stranger with respect to the share of the

others.

2. The partners are not allowed to undertake any act of disposal

with respect to the other‟s share except with the latter‟s

permission.

3. Each partner can sell his own share without the other

partners‟ consent, except in cases where share of one partner

can not be distinguished from the other.

4. The share of one partner in the possession of another co-

owner is governed by the rules of wadī„ah (deposit). If one

co-owner further deposits such property with a third party

without the permission of his partner, he is liable for

compensation (amān) if the property is destroyed.

5. Right to demand the recovery of a debt belongs to each co-

owner jointly and severally. A debt possessed by one partner

is governed by the rules of sharikat al-Milk. Further,

postponement of the recovery of a debt can not be granted by

one co-owner without the permission of the other. 17

2. Sharikat al-‘Aqd:

It is a partnership,which comes into being as a result of agreement

between two or more persons in order to share the profits . 18

16

Ibid, articles 1063, 1064 . 17

See Nyazee, Imran Ahsan, Islamic Law of Business organization-

Partnerships, Islamabad, The International Institute of Islamic Thought

and Islamic Research Institute, 1997, pp. 36-37 . 18

Majallah, article 1329.


250

Kinds of Sharikat al-‘Aqd

There is a considerable difference of opinion among the various

schools of thought about the types of contractual partnership.

According to Mālikī and Shāfi‟ī jurists, contractual

partnership is of four kinds:

1. Sharikat al-„Inān

2. Sharikat al-Mufāwadah

3. Sharikat al-A„māl

4. Sharikat al-Wujūh 19

According to the anbalīs, there are five kinds of contractual

partnership:

1. Sharikat al-„Inān

2. Sharikat al-Mufāwaah

3. Sharikat al-A„māl

4. Sharikat al-Wujūh.

5. Muārabah. 20

According to the anafī jurists, Sharikah is of three types:

1. Sharikat al-Amwāl

2. Sharikat al-A'māl

3. Sharikat al-Wujūh

Each of the above kinds is further divided into „inān (limited) or

mufāwadah (unlimited). Thus, they are of the following six

categories:

1. Sharikat al-Amwāl by way of mufāwadah.

2. Sharikat al-Amwāl by way of „inān.

3. Sharikat al-A'māl by way of mufāwadah.

4. Sharikat al-A'māl by way of „inān.

5. Sharikat al-Wujūh by way of mufāwadah.

6. Sharikat al-Wujūh by way of „inān. 21

We will follow here the scheme of anafī School,i.e.,

division of sharikah into amwāl, a'māl and wujūh. Our emphasis

19

Ibn Rushd, Bidāyat al-Mujtahid, vol. p.248. 20

Ibn Qudāmah, al-Mughnī, vol. 5, p.3. 21

Zayla'ī, Tabyīn al-aqā‟iq, vol 3, p.313.


251

in this discussion will be on inān investment partnership or amwāl

by way of inān and mufāwadah investment partnership or amwāl

by way of mufāwadah

Conditions For Contractual Partnership

The following are the basic conditions common to every type of

contractual partnership (Sharikah al-'Aqd)

Basic elements:

A contractual partnership should include all the basic elements of

a valid contract, i.e.,

(i) Offer and acceptance;

(ii) Competence of parties: Only legally competent person

capable of disposing property and conferring mandate can be

a party to a contractual partnership

(iii) Subject matter: It is also necessary that the subject matter of

partnership be a lawful trade. Thus, a partnership for trade in

wine and other illicit things is invalid.

Agency:

Each kind of contractual partnership should contain a contract of

agency. Each partner is an agent of the other partners in all

dispositions made by him, in trading and in accepting work.

Division of Profit:

It should be declared in what way the profit is to be divided

between the partners.

Known Portion of Profit:

Shares of profit to be divided between the shareholders must be

known by division, for instance, one half (1/2) one third (1/3) or

one fourth (1/4). No fixed amount or portion of the profit can be

stipulated for any of the partners. The loss is to be borne in

proportion to the respective capitals of the partners.

Entitlement to Profit:

According to the anafī jurists a partner in a contractual

partnership becomes entitled to the profit in one of three ways.


252

i) By capital

ii) By work

iii) By the liability incurred by the partner. 22

According to the majority of Muslim jurists, however, a

partner becomes entitled to the profit by capital and labour only.

According to the anafī jurists, it is lawful that the capital of each 23

partner be equal and yet the profit be shared unequally. Zufar,

Shāfi„ī, and Mālik do not subscribe to this view because according

to them the share in the larger portion of profit is earned without

any responsibility since the responsibility is in proportion to

capital which one advances. The arguments of the anafī scholars

on this issue are two fold:

First: The Prophet (s.a.w.s) has said “The profit between

partners should follow the agreement between them and the loss

should be borne in proportion to their investments”. 24

In this

precept of the Holy Prophet (s.a.w.s) no distinction is made

between the equality or inequality of their properties.

Second: In the same manner as a person is entitled to profit

by virtue of capital, he is also entitled to it by virtue of labour as in

the case of Muārabah. It may happen sometime that one of the

partners is more skillful and expert in business than the other,

consequently he will not agree to the other sharing equally with

him in the profit.

Now we take up the kinds of shariat al-'aqd (Contractual

partnership) in detail.

I. Sharikat al-Amwāl (Investment Partnership)

Definition

It is an agreement between two or more persons to invest a sum of

money in a business and share its profits according to agreement.

22

Kāsanī, Badā‟i„ al-anā‟i„, vol.6, p.62; Ibn al-Hamām, Fat al-Qadīr,

vol.5, p.21. 23

Ibn Juzy, al-Qawānīn al-Fiqhiyyah, p.284 . 24

Jamāl al-Dīn 'Abd Allah Zayla'ī, Nab al-Rāyah,Cairo: Dār al-adīth,

1sted. 1938, vol.3, p.478.


253

The investment of this partnership consists of capital contributed

by the partners. It is divided into two kinds, i.e., 'inān and

mufāwaah.

Specified Conditions for Sharikat al-Amwāl

There are certain conditions of sharikat al-amwāl which are

applicable to both „inān sharikat al-amwāl and mufāwaah

sharikat al-amwāl. 25

These conditions are as follows:

a) Present capital: The anafīs stipulate that the capital of the

Sharikah must be an ascertained commodity („ayn„) and not

dayn, i.e., wealth that is absent. Present wealth, in their view, is

wealth available for transactions, and not necessarily present

physically on the spot. Hence, in the opinion of the anafī

jurists, the absence of capital, at the time the contract is

negotiated, does not invalidate the partnership as long as the

capital is in hand, when the joint purchase is made. Kāsānī

says:

Among these conditions is the availability of the wealth in the

form of an „ayn (ascertained commodity). It should neither be

a receivable (dayn) nor absent wealth, otherwise, the

partnership will not be permissible, either as „inān or as

mufāwaah. The reason is that the purpose of the partnership

is profit and this is achievable through transactions in the

capital. Such transactions are not possible in a dayn nor in

wealth that is absent. The purpose cannot be achieved. The

presence (availability of the goods), however, is stipulated at

the time of the transaction and not at the time of the contract.

The contract of sharikah is completed with the purchase

transaction. The availability of the goods comes into operation

then. 26

According Imām Mālīk the capital should be present at the

time the contract is concluded. The jurists are also unanimous that

mufāwaah or „inān partnership cannot be concluded on debt. 27

25

See Kāsānī ,Badā‟i„ al-anā‟i„, vol.6, p.59. 26

Ibid., vol. 6, p.60. 27

Ibn Rushd, Bidāyat al-Mujtahid vol.2, p.250 .


254

b) Intermingling of capitals: The majority of Muslims do not

stipulate mixing of capitals (khal) prior to the conclusion of the

contract. In this regard Imām Sarakhsī says:

In our view, „inān does not require the intermingling of

investment. However, according to Zufar and Shāfi'ī, mingling

is pre-requisite for a valid partnership. In the Shāfi'īs view,

proprietary partnership (Sharikat al-milk) is the underlying

principle of all partnerships and that contractual partnership

must be based on it.28

Shāfi„ī holds that the meaning of the word sharikah is

intermingling and that this is realized only through ownership. If

the two investments are mingled in a manner that makes them

indistinguishable from each other, then the partnership becomes

effective through ownership and a contractual partnership can be

built upon it. If one of the investments is lost before they are

intermingled, the loss is borne exclusively by its owner and any

projected contractual partnership cannot become effective because

the capital did not undergo the process of intermingling. 29

The condition of intermingling in Shāfi„ī Law requires that

the capital advanced by the parties be uniform, i.e., the currency

should be of the same denomination and quality.

c. Absolute Currency:

It is also a condition for a valid sharikat al-amwāl that its

investment is in the form of money. Assets in the form of

merchandise are unsuitable for partnership investment. According

to the majority of legal scholars, a partnership in which the

investment consists of goods is invalid. Imām Mālik holds that

capital in the form of currency is not a pre-requisite and that

partnership in goods is permissible if their value is determined on

the day the contract is concluded.

According to the majority, agency is the necessary attribute of

partnership and agency is unrealisable in goods as investment.

Kāsānī says;

28

Sarakhsī, al-Mabsū, vol.11, p.177 . 29

Nawawī, Minhāj, vol.2, p.213 .


255

It is not permissible for one person to say to another: Sell your

goods so that we may share its price. And since agency,

which is one of the indispensable features of partnership, is

not permissible, partnership also is not permissible. It is,

however, permissible for one to say to another: "Buy goods

with the hundred dirhams belonging to you on the condition

that what you buy be shared between us. 30

He further writes:

Partnership in goods is not permissible because it leads to

ignorance regarding the profit at the time of division. For the

amount of the investment will consist of the value that will not

be known except with conjecture and estimation. The amount

of profit will, therefore, be unknown and this will lead to

dispute at the time of division. 31

Kinds of Sharikat al-Amwāl

As mentioned earlier, Shariakt al-amwal is divided into

two kinds, i.e., „inan sharikat al-amwal or sharikah al-

amwāl by way of „inan and Mufāwaah amwal

partnership or sharikat al-amwāl by way of Mufāwaah.

Following is detailed description of both these kinds.

A. ‘Inān Sharikat al-Amwāl

Meaning of „Inān

It is derived from the word „inān, i.e., reins of riding animal. The

rider holds the reins with one hand, while doing something with

the other. Similarly, each one of the partners in this partnership

hands over the reins (right) of transaction in some wealth to the

other and not in the rest. Further, the animal has two reins, one

longer and the other one shorter. Similarly this partnership is

permissible both with equal and unequal capital and labour.

The Definition of ‘Inān

It is a contract between two or more persons to work in any

particular trade with determined capital and to share profit and loss

30

Kāsānī ,Badā‟i„ al-anā‟i„, vol.,6,p.59. 31

Ibid.


256

with determined rates. All the Muslim jurists are unanimous on its

validity.

Types of Sharikat al-‘Inān

The „inān partnership on the basis of its scope is divided into two

general categories:

1. General „inān or ordinary „inān partnership.

2. Specific „inān or restricted „inān partnership.

General ‘Inān

It is a partnership formed for the purpose of general trade with no

restrictions with respect to the commodities that could be dealt

with or the transactions that could be negotiated. Any legitimate

trading activity designated to bring the profit comes within its

purview.

Specific ‘Inān

In this type of partnership, partners are confined to the trade with a

certain category of goods defined in the partnership agreement.

This agreement could be continuing one, spread over a

considerable period of time and involving numerous transactions,

or it could be limited to a single venture, i.e., the purchase of the

desired merchandise and its subsequent sale. The mutual agency of

the associates in the specific „inān extends only to the

commodities or areas of trade agreed upon and no further.

General Rules Regarding the ‘Inān Partnership

Following are the general rules regarding the „inān partnership: 32

a) Management: It is lawful that the partnership is carried out by

both the partners or either of them.

b) Mutual agency and not surety: Each partner in sharikat al-

„inān is the agent of the other partner, so he possesses all the rights

of the agent. He is not required to be surety for the other.

32

Zuaylī, al-Fiqh al-„Islāmī wa Addillatuhū, vol.4, pp.415-416.


257

c) Equal or unequal capital: The „inān does not require equality,

so the capital of one of the partners may be more than that of the

other.

d) Equal or unequal distribution of profits: Profits may be

divided equally or unequally. Thus, it is lawful that capital of each

partner be equal and yet the profits be unequally distributed. It is

permissible according to the anāfīs that profit be distributed

unequally with the equality of capital provided the partner getting

larger share of profit contributes extra labour for the extra amount

because according to them the person is entitled to profit by

capital labour and responsibility (amān) and in the present case

labour is causing profit. Thus, if one of them stipulates for himself

a share in the profit proportionally larger than that of his

colleague, this is permissible. Imām Zufar from amongst the

anafīs does not agree with this opinion. anbalī and Zaidī jurists

favour anafī viewpoint that profit follows the agreement, while

the loss is according to the capital. According to Mālikī, Shāfi‟ī

and Zāhirī jurists and Zufar both profit and loss should be strictly

in accordance with the capital as the profit is an increase in the

capital and loss in the decrease so both should be governed by the

capital.

Rights of Partners in ‘inān Partnership

The rights, duties and obligations of the inān partners pertain only

to that portion of their respective property invested in the joint

undertaking. In all matters that are not of their partnership, each of

them is a stranger in relation to his other partner. Following are

some important rights of partners in an „inān partnership:33

a) Right to sell goods for cash and credit: Each partner has the

right to sell the goods of the sharikah for cash as well as for credit.

Likewise, he has right to purchase for cash or for credit. He enjoys

this right without any restriction and limitation on him. The right

is conferred upon him by virtue of the contract and he does not

need special permission from the other partners for doing so.

33

Ibid. vol.4, pp.415-416.


258

He cannot, however, purchase on credit in excess of the

capital of the sharikah. This would amount to istidānāh for which

special permission is required from the other partners. If other

partners expressly authorize him he may incur debts in excess of

the amount of partnership fund. Istidānāh means to purchase on

credit for the partnership in excess of the capital. It is in fact a

mode of enhancing financial liability of the investors.

b) Right to Ibā‘:Ibā„means to hand over the property and

capital of partnership to a merchant, who is not partner in

partnership business, to trade with it without receiving any

remuneration or commission and to return it with profit to the

partnership. The „inān partner has right to enter into an ibā„ even

if the partner does not expressly permit him to do so, because it is

the practice among the businessmen. The reason for its permission

is that he has a right to employ a person for the business in which

he has to pay wages, while in ibā„ he is not required to pay

remuneration to the merchant, so it is more beneficial for business

than to hire services of somebody for remuneration.

c) Right to Muārabah: Each partner is also at liberty to give

his capital in the way of muārabah, because the partnership is

designed for profit and muārabah is a mode of earning profit.

d) Right to appoint agent: A partner in the sharikat al-„inān is

at liberty to appoint a person as his agent for the business

transactions. The businessmen cannot undertake all the business

activities themselves so they often appoint others as their agents.

This being requirement of business is permissible in „inān as well.

e) Right to Mortgage or pledge: A partner in this sharikah can

pledge or mortgage the assets of the partnership and also accept

such pledges but only with the permission of the partners.

f) Right to deposit: The partner has the right to deposit goods

belonging to the partnership; for depositing is one of the

customary practices of merchants.

g) Contractual obligations of a partner: According to the

anafīs all the obligations and rights arising from a contract made

by a partner will revert to him. Thus if one of them has purchased

something, or hired services, he alone will be sued with respect to


259

claims arising from such transactions. Likewise, it is he who has

right to sue third parties for all claims connected with the contract

he concluded, and his other partners will be considered strangers

as for as these claims are concerned.

h) Right to travel: According to majority of the Muslim Jurists, a

partner can also travel to another place with the sharikah property

if there is no specification of place in the agreement, but according

to Abū Yūsuf and Shāfi'ī the partner has no such right except by

the explicit permission of his other partners.

i) Right to extend gift and qar: A partner does not have right

to gift the property of the partnership. Similarly he does not have

right to grant loan from the common funds.

Liability of Partners in the ‘Inān Partnership

An „inān partnership comprehends mutual agency but not mutual

surety. By virtue of this mutual agency but no mutual surety, each

of them does not become liable for that which is owed by his

colleague. Thus, liability towards third party is several but not

joint.

Formation of the ‘Inān Partnership

Partnership in an„inān partnership is open to any person meeting

the minimum standards of legal competence. There are no

restrictions with respect to personal status, which is peculiar to

mufāwaah. Any person of either sex who is of age and of sound

mind may legitimately contract an„inān partnership.

Similarly, a difference in personal status between prospective

partners does not constitute a barrier to the formation of a valid

„inān partnership. An „inān partnership negotiated between two

minors with the explicit approval of their guardians is valid, as is a

partnership between Muslim and dhimmī.

Dissolution of the ‘Inān Partnership

The circumstances affecting the termination of all contractual

partnerships including „inān partnership are as follows:


260

(a) Recession of the contract by either party:

Partnership can be terminated by the unilateral recession of one of

its members. In this case the dissolution of partnership does not

become effective until the other partners become aware of their

partner‘s action. According to Section 43 of the Partnership Act

1932 in case of partnership at will any partner may dissolve the

firm, by serving notice in writing to all the existing partners of his

intention to dissolve the firm.

(b) Death of one party:

The death of one of the partners results in the immediate

termination of the partnership because the underlying contract of

wakālah becomes void (bāil) upon death and the sharikah is

structured upon wakālah. As each of them is also the agent of the

other and the death automatically discharges the agent, whether

the latter knows about it or not any transaction conducted by the

surviving partner after his colleague‟s demise and ignorance of the

fact, will be strictly on his own account. Heirs of the deceased

partner have no claim to the profits. Nor they are liable for any

obligation, which might arise from such transaction. There is no

provision in Islamic Law by means of which a partnership can

remain intact after the death of one of its members. If the heirs

wish to continue the association with the surviving partner, they

must negotiate completely a new agreement.

c) Apostasy and emigration to enemy lands:

If both the partners are Muslim the apostasy of one of them and

his emigration to non-Muslim territory (dār al-arb) results in the

termination of partnership.

d) Insanity of one of the partners:

The loss of mental competence by one of the partners also results

in the termination of partnership, provided the insanity is

continuous. The Muslim jurists disagree about the period of

insanity. According to Abū Yūsuf, the period is one month, but

according to Muhammad it is a full year. Thus sharikah will not

stand dissolved before the expiry of this period.


261

e) Expiration of Period:

If the sharikah was established for a limited period it will stand

terminated by the expiration of that period. The same position has

been taken by the law, as explained in Section 40 of the

Partnership Act 1932.

f) Completion of Venture:

When the undertaking or venture is completed the partnership may

be dissolved. Section-42 (b) of the Partnership Act 1932 also

confirms this position.

g) Mutual Consent:

The partnership can also be terminated by the mutual consent of

the whole capital or of the stock of each partner.

h) Loss of capital:

(i) Before purchase: If the whole partnership capital or the

capital of either partner perishes before any purchase is made, the

contract of partnership is annulled.

(ii) Loss of capital before intermingling: Where capital perishes

after the mixture, the loss falls upon the partnership, because

property of each is no longer distinguishable from other. So the

loss must be borne by both parties.

(iii) Loss of capital after purchase by one partner: A purchase

made by one partner where the capital of the other perishes

afterwards is also shared by the both.

(iv) Loss of one capital before purchase of the other partner: If

one partner makes a purchase with his own capital and the capital

of the other afterwards perishes before he has made any purchase

the purchased goods will be considered joint property of the

parties and will be shared by them according to agreement.

B) Mufāwahah Sharikat al-Amwāl

Mufāwaah literally means the participation in each thing with

equality, but technically it has a narrower meaning, because it


262

applies to equality in real estate and goods”.34

The author of Hidāyah defines it in the following words:

It is a contract of participation between two or more

persons, with the condition of complete equality with

respect to capital, profit and status, for working with

their own wealth, or with their labour in another‟s

wealth, or on the basis of their credit-worthiness, so that

each partner is a surety for the other.35

This shows that in

this partnership each partner enjoys complete equality in

the areas of capital, management and right of

disposition.

According to the anafīs Mufāwaah contains the following

elements.

i) Equality in wealth (capital), profit and loss and

participation in the affairs of the partnership.

ii) Equality in contractual capacity and religion.

iii) Each partner is an agent of other partners.

v) Each partner is also responsible on behalf of other

partners of their acts and deeds, i.e., he is surety for his

partner.

Mufāwaah in Mālikī Law:

According to Mālikī the term Mufāwaah is applied to an

arrangement in which each party confers upon his colleague full

authority to dispose of their joint capital in any manner intended to

benefit their association. For them it denotes a general type of

partnership in which capital and profits are distributed in indefinite

shares. The Mālikī jurists lay emphasis on the tafwīd and not on

equality as is the case in anafī law. To them tafwī means the

delegation of discretionary authority to conduct the trade with

each other's capital. Each partner is his colleague‟s agents and can

act in all commercial matters with respect of his own and his

colleague‟s property without the latter‟s approval. The liability of

34

Ibn 'Ābidīn, Radd al-Mutār, vol.4, p.402. 35

Marghinānī, al-Hidāyah, vol.3, p.3 .


263

the mufāwaah is joint, thus any obligation incurred on behalf of

the partnership towards other parties, by one of the associates can

be claimed in full, from any of the other partners. There is no

requirement of equality in the personal and financial status of the

prospective partners. 36

Legitimacy of Mufāwaah:

According to the anafī and the Mālikī jurists it is valid for the

following reasons: 37

i) Istisān: This type of partnership is permitted on the basis of

istisān. The basis of istisān is the saying of the Holy

Prophet (s.a.w.s), “Engage in mufāwaah for it is full of

blessings”. 38

ii) Further, the people used to practice it without its denial by the

Holy Prophet (s.a.w.s). For this reason the rule of analogy

was given up. Moreover, the jahālah (uncertainty) involved

in it is not different from that in muārabah.

Mufāwaah partnership is not permitted by the Shāfi„ī, Zahirī

and Imāmī jurists. They argue that the tradition quoted by the

Hanafīs is not available in the authentic books of Hadīth.

Moreover, the jahālah, (uncertainty) contained in it is of large

degree. It is also impracticable because equality cannot be

maintained among the partners from the beginning of partnership

till the end.

Imām Shāfi„ī,while rejecting Mufāwadah partnership says in

al-Umm: “Sharikat al- mufāwaah is bāil and I do not know of

anything else in this world that can be declared void if it is not the

mufāwaah partnership”. 39

Conditions of the Mufāwaah Partnership:

All the conditions relating to capital, contractual capacity,

dispositions of partners in the „inān partnership are also applicable

36

Ibn Rushd, al-Qawānīn al-Fiqhiyyah, p.283. 37

Ibn Juzy,'Bidāyat al-Mujtahid, vol.2, p.191,192 . 38

Zayla'ī, Nab al-Rāyah vol.3, p.457 . 39

Shāfi'ī, al-Umm vol.3, p.3, p.369.


264

to mufāwaah, because mufāwaah like „inān is a kind of

Sharikat al-amwāl. There are, however, certain, conditions, which

are peculiar to the mufāwaah partnership. These are:

a) Mutual agency and surety: Each partner in mufāwaah must

have the capacity of being agent and surety for the other. A valid

mufāwaah partnership can be contracted only between two adults

and sane people. As mufāwaah is based on the idea of mutual

surety in which each of the partners provides surety for his

colleague, hence minors are not of that category of person who can

provide surety, and for this reason any mufāwaah partnership

between them is not permissible.

b) Equality in capital: The equality in the capital of the partners

is the basic essence of mufāwaah partnership. Any deviation

from the equality immediately renders the mufāwaah invalid.

c) Inclusion of cash capital in joint investment: Mufāwaah

also requires the inclusion of all cash capital in joint investment.

Hence, if one of the partners retains for himself the ownership of

some capital, which is eligible for partnership, it will not constitute

mufāwaah partnership. However, if the capital retained by one of

the partners is in the form of goods, or is a debt owed to him by

another person, then the partnership between them is not valid.

This is because goods and debts are not suitable form of

partnership investment. The equality is not also required in family

belongings. Inequality in personal and household property is not

barrier to a valid mufāwaah partnership.

d) Equality in profit and loss: Where the partners invest equal

amount of capital but agree on an unequal distribution of the

profits, or conversely, they invest unequal amount of capital and

agree on equal distribution of the profits, the partnership is not

considered to be mufāwaah.

e) Equality in religion: The demand for equality between the

partners in mufāwaah extends to religious affiliation as well.

According to Abū anīfah and Muammad it can only take place

between two Muslim only. It cannot be held between Muslim and

a Christian or a Jew because a non-Muslim may handle such

goods, which are prohibited for Muslim such as wine and pig. But


265

according to Abū Yūsuf, a non-Muslim can be a partner in

mufāwaah with a Muslim because the basic essence of

partnership according to him is mutual agency and mutual surety

and the non-Muslims are qualified for both these purposes.

f) The use of the term Mufāwaah: According to the anafī

jurists, the mufāwaah partnership cannot be contracted except

with the term mufāwaah or any other word having the meaning

of mufāwaah. It is necessary because most of the people are not

aware of the rules governing the mufāwaah partnership.

Therefore, the consent of the parties relating to its rules cannot be

effective until they know them. The express use of the word

mufāwaah is only the substitute to remove this difficulty.

Rights and duties of Partners in Mufāwaah partnership

The relationship that exists between partners in a contract of

mufāwaah is based on the agency (wakālah) as well as on the

contract of surety (kafālah). By virtue of the contract of surety,

each partner is fully liable for the actions and commitments of the

other in all commercial matters. The claims of third parties are

actionable against either partner; and conversely, either partner

can press a claim against a third party, regardless of whether or not

he was actually involved in the transaction. In all partnerships

except the mufāwaah, the liability towards third parties is several

but not joint. In mufāwaah liability towards third parties is

several and joint.40

The following are some rights and duties of the partner in

mufāwaah Partnership:

a) Admission of debts:

A creditor can claim his debt from either of the partners, from one

due to his admission and from the other for being the surety.

b) Debts in Mufāwaah:

Money indebted by one of the partners during the course of

business can be collected from any one of them because a

40

See Udovitch Abraham L., Profit and Partnership in Medieval

Islām,p.100.U.S.A Princeton University Press, 1970.


266

commitment made by one is binding on the other. Thus, liability is

joint and several.

c) Suretyship for a stranger:

A partner can become surety for a third party. Such guarantee will

be binding on all partners. Imām Abū anīfah justifies such

guarantee by saying that although it is a gratuitous contract in the

beginning but at the end it becomes a commutative contract, and

the guarantor has the right to claim reimbursement of what he has

paid on the demand of debtor. The two pupils of Imām Abū

anīfah, however, do not approve to this suretyship.

d) Investment with third parties:

The mufāwaah partner, without prior permission of his colleague,

may invest cash or goods in muārabah or accept capital from

outside parties for muārabah.

e) Pledging by the partner:

Each partner may give a pledge as guarantee of payment of debt or

take a pledge as a security.

f) Demands relating to transactions:

Either of the partners can be demanded for the price or

performance of transactions relating to the business although it is

contracted by other partner. Also, any one from amongst the

parties can take the possession of the thing although contracted by

the other. Misappropriation affecting third parties in the course of

business make the other partner liable. The aggrieved party can

sue any of them. The claims of third party are thus, actionable

against any partner. 41

g) Exclusion from mutual liability:

A mufāwaah partner is not liable for any obligation of his partner

arising from the following categories of activities:

(i) Criminal acts

(ii) Wrongful appropriation of someone else‟s property.

(iii) Marriage and divorce

41

See Zuaylī, al-Fiqh al-Islāmī, vol.4, pp. 821-823.


267

(iv) Surety provided by a partner for the commercial activities of

third parties.

Following dispositions are not permissible for the partners.

(a) Qar and i„ārah:

Qar and i„ārah are not allowed for the partners because both

are acts of charity and donation, and donation is not permissible

from partnership funds.

b) Hibah and adaqah are not also allowed for the same

reasons.

c) Torts and crimes: It is not allowed for a partner to be

surety for the other in torts and crimes that are not

related to business.

d) Expenses of partners:

All expenses connected with the pursuit of trade are to be

covered from partnership fund. But the expenditures incurred on

the purchase of food, cloths, transport and house for partners'

families will be paid by the partners from their private funds.

Dissolution of a Sharikat al-Mufāwaah:

Following are circumstances, which affect termination of

mufāwaah:

i) Death of one of the contracting parties.

ii) Apostasy of one of the partners, and his emigration to

non-Muslim territory.

iii) Unilateral abrogation by one of the partners.

iv) Lack of equality: The lack of equality can be three-fold

by which mufāwaah can be terminated.

(a) Lack of equality in the capital.

(b) Discontinuance of equality during the course of

business.

(c) Increase in the exchange value of the capital of one

partner before the transaction is performed.


268

Thus, mufāwadah is terminated when the equality of capital

is disturbed. The balance of equality can be upset in a number of

ways. If during the operation of the partnership one of the partners

collects a debt owed to him prior to the contracting of the

partnership, and if the payment is in a form of cash then the

equality is breached and the mufāwaah is invalidated.42

II. Sharikat al-a`māl: Work Partnership

Definition

It is a partnership in which the partners contribute investment in

the form of labour and skill. It is also called Sharikat al-abdān

because the partners perform manual labour, like tailors, butchers

and so on. It is also known as Sharikat al-anā'i' because the

capital of the partners is their skill.

Through this mushārakah the artisans, technician and others

skilled and unskilled labour join together in one or different

places, without any capital to produce some commodity or

perform some work, on the condition that they will divide between

them the profits arising from it. The type of labour envisaged is

usually a skill in some kind of manufacture such as tailoring,

dyeing, or weaving.

The work partnership can take the form of limited partnership

or unlimited partnership namely;

(i) „Inān Work Partnership

ii) Mufāwaah Work Partnership

‘Inān Work Partnership

„Inān work partnership is based on the concept of agency and not

on suretyship. Thus, each partner is liable only for the obligation

personally incurred by himself.

Condition for Acceptance and Performance of Work

a) Right of accepting work and performing it:

Each partner has the right to accept work and then to perform

it himself on behalf of the Sharikah. It is also permitted that one of

42

See Uduvitch, Profit and Partnership in Medieval Islām, pp.117,118.


269

them accepts work, while the other performs it. In a business that

requires mixed labour, the work may be accepted by one and then

performed jointly by both. For example, in the tailoring business,

it is permitted that one person accepts work, cuts the cloth and

then hands it over to his partner for stitching and completion.

b. Right to delegate the work accepted:

No partner can be forced for personal performance of the work

that he accepted. He is at liberty to do the work personally or to

delegate it to another. If the customer stipulates performance of

the work by a particular partner, in that case the partner has to

perform it.

c. Performance of work is liability of each Partner:

The general rule in the contracts of personal services is that

performance can be demanded from the person making the

contract alone. As such, the Partner accepting the work should be

sued for its performance. This rule, however, is given up in „inān

work partnership on the basis of istisān. Thus, either of the

partners may be required to perform the work, which is accepted

by his other partner. Similarly each partner has right to demand

remuneration from the customer.

The Majallah has explained this point in some detail;

Each Partner is the agent of the other in the acceptance of

work. For the work that is accepted by one of them,

performance is binding upon him as well as his partner. „Inān

by way of sharikat al-A„māl has the same hukm as mufāwaah

with respect to amān al-„amal (liability of work). Thus, the

work accepted by one of the partners may be demanded by the

customer from any partner he chooses. Each partner is

(legally) bound for the performance of such work. He does not

have the right to say: “This work was accepted by my partner

and I have nothing to do with it." 43

Section 1388 of the Majallah states that: „Inān by way of Sharikat

al-A'māl takes the ukm of mufāwaah, in the demand for

43

Majallah, Article, 1387.See also Nyazee, Islamic Law of Business

Organization:Parnterships,pp.150,151.


270

compensation from the customer and for full satisfaction of the

claim for wages. The customer is absolved of this liability by

paying to one of them.

Division of Profit

The profit in „inān work partnership is divided according to

liability of work. It is not linked with the actual work undertaken

by either of partners. The loss is also divided in proportion to

liability borne. For example, if a partner becomes liable for one-

third of the whole work accepted by the partnership, he would be

entitled to 1/3 of the total profit earned by the partnership. In

regard to the division of profit in „inān work partnership Imām

Sarakhsī expounds his opinion in the following words:

In the case of partners in work, if one of them is absent or is

ill, or does not work, while the other is working, the profit is

still to be shared by them according to what they have agreed

upon. This is due to the tradition from the Messenger of Allah

(s.a.w.s) that a person came to him and said: “I work in the

market and I have a partner who prays in the mosque.” The

Messenger of Allah said: “Perhaps your work is blessed

because of him”. The meaning here is that claim to reward

derives from acceptance of work and not necessarily from its

direct execution. The acceptance is (presumed to be) from

both, even if one of them works. 44

The ratio fixed for the liability for performance is what will

determine the ratio for sharing profits. It is obvious that if such a

ratio for amān al-amal is not fixed, it will be presumed to be

equal. 45

Mufāwaah work partnership

This partnership requires equal share of liability undertaken by

each partner, and equal share of profit and loss. The compensation

received for the work is shared equally by all the partners,

irrespective of the fact that the work is done in the partnership or

outside the business. In the „inān partnership wages for work done

by a partner outside the business belong to the partner alone.

44

Sarakhasī, al-Mabsū, vol. 11, pp. 152-158. 45

Ibid., vol. 11, p.154 .


271

Mālikī work partnership

Mālikī work partnership resembles the anafī work partnership

closely, but in some aspects it is more restrictive than anafī

partnership. For example it requires that all its members should

follow the same trade or profession.

The Following are some distinct features of the Mālikī work

partnership:

1. Similarity of trade and uniformity of place:

The partners should follow the same trade or profession like

partnership between two tailors. The Mālikī jurists also prefer that

both the partners should work in the same place, i.e., in the same

stall.

2. Actual participation in work:

All the partners should participate in actual work. A partnership in

which all the work is assigned to one partner while the other

provides some equipment but not work is invalid partnership. The

non-working party would be entitled to some equitable rental fee

for use of equipment. It is also not permissible that one accepts the

work and the other undertakes the work.

3. Division of profit according to work:

The division of profit and loss in this partnership follows each

partner‟s work, which he contributes. No premium is placed on the

quality of each partner‟s labour. 46

III. Sharikat al-Wujūh (Credit Partnership):

According to Sarakhsī it is a partnership of two people without

capital upon the condition that they will buy on credit and sell for

cash. It has been called by this name on the grounds that they

employ their credit-worthiness, because credit is extended only to

those who have good reputation among the people (traders).47

46

For Mālikī work partnership see Ibn Rushd, Bidāyat al-Mujtahid,vol.

2, p.192. 47

Sarakhsī, al-Mabsūt, vol.II, pp.152-158.


272

Sharikat al-wujūh or credit partnership can be of two types

according to the anafīs:

(i) „Inān credit partnership

(ii) Mufāwaah credit partnership.

Condition for sharing profit and loss in the „inān credit

partnership

According to the anafī jurists the conditions for sharing of

profit and loss in this type of partnership are as follows:

1. Specified share in the goods purchased:

The primary condition for this type of partnership is that the share

of the partners in the goods purchased must be specified. The

remaining stipulations are based on this condition.

2. Entitlement to profit based upon liability:

The type of liability mentioned in the „Anān work partnership was

called amān al-a'māl. The type of liability involved here is the

liability for the price of the purchased goods, and is based upon

the share of ownership in the property purchased. Once something

is purchased, it becomes the asset of the partnership and its value

is based upon its price. The ratio in which this asset is owed by the

partners is the basis and not the ratio of the debt owned. Thus, if

the share of a partner is one-half in the purchased goods, he is

liable for half the price owned for these goods. He is, therefore,

entitled to half the profits. This shows that the profit in this

partnership must correspond with the liability.

3. Unequal ownership in the purchased goods:

Equality of ownership in the purchased goods is not a requirement.

The partners may agree on any ratio of ownership they want, and

the profit between them has to be distributed according to that

ratio.

4. Stipulation of profits contrary to ownership:

The stipulation of profits contrary to ownership is of no

consequence. If an additional profit is stipulated for any partner, it

means that the ratio of ownership is violated. The condition will,


273

therefore, be ignored, if the liability for the price is equal. The

reason appears to be that the skills, reputation and good work of

one partner are already linked with the amount of credit a partner

can raise. The ratio of ownership in the price has already taken all

those things into account

5. Excess work:

Excess work in this partnership is of no consequence for

entitlement to profit. Sarakhsī says:

In this contract a stipulation of profits in excess (over the ratio

of ownership) is not valid when there is equality of ownership

in the thing purchased. The reason is that this excess is not

linked either to the share of the partner in wealth or to his

work or to amān. Stipulating such a part of the profits will

amount to something that is not supported by liability to bear

loss. If an excess of the profits is desired, it is necessary to

stipulate corresponding excess in ownership of the purchased

goods (and thus in the liability to bear loss). This way, it may

be, that one third is for one partner and two-third for the other,

and thereafter the other profits may be shared in proportion to

the ownership.48

Conditions for mufāwaah credit partnership according to the

anafī jurists

The conditions of mufāwaah credit partnership differ from those

of „inān in the following respects:

1. It is not necessary in this partnership to specify the share of a

partner in the goods purchased on credit, because the contract

of mufāwaah requires equality, and all the shares are equal.

This makes equality of shares in goods purchased, a condition

for this partnership. In „inān, the shares have to be specified.

2. Any partner may be sued for the price of the goods

purchased, because he is an agent as well as surety for his

partner(s). In „inān, the uqūq (rights of performance) revert

to the dealing partner, and the other partner cannot be sued.

48

Nyazee,Islamic Law of Busines Organization: Partnerships.p.155,156.


274

3. Each thing purchased on credit by a partner for business

purposes is bought for the joint business. This stipulation

does not apply to goods purchased on cash for his personal

business as the business transactions are entirely on a cash

basis and should not be a part of the credit Sharikah, because

business on credit-worthiness is based upon credit purchased

alone. The employment of cash payments would convert it to

a mufāwaah based on mal (sharikat al-amwāl by way of

mufāwaah).49

Modern Forms of Partnership

The Islamic financial institutions frequently use mushārakah as a

mode of financing which is considered also a real alternative to

interest under an Islamic economic system. Following are some

forms of mushārakah financing.

1. Project financing:

Islamic Banks provide project finance on the basis of mushārakah

One or two or more entrepreneurs approach the bank for finance

and the bank along with other partners provides complete finance.

All the partners, including the bank, have the right to participate in

the management of the project. Any one or all of them also have

right to waive this right. The profits are distributed according to

agreed ratios, which need not be the same as capital proportion but

loss has to be shared exactly in the same proportion in which

different partners provided finance.

Since the finance in the above mentioned case is provided

completely by the bank and its partners, they jointly assume the

role of arbāb al-māl (financers) and the entrepreneurs, the

Muāribūn. Thus, it is a type of muārabah partnership. But if the

investment is provided by both the parties, i.e., the bank and

entrepreneurs or the businessmen then it is a mushārakah

arrangement. The bank before financing any project gets it

evaluated by its experts. If it is found feasible and is expected to

be profitable, and there is satisfaction on the part of bank that the

entrepreneurs have sufficient experience to handle the project,

49

Ibid,. p.173.


275

then the partnership is negotiated. Profits are allocated according

to an agreed proportion, allowing for managerial skills to be

remunerated. This type of mushārakah terminates with the

project‟s completion.

2. Financing of a single transaction:

Islamic banks also provide finances in order to meet day today

needs of small traders. The traders approach the bank requesting it

to finance purchase of certain goods. Now if the bank considers

transaction profitable, it finances purchase of required goods on

the basis of mushārakah. Then the goods are sold in the market

and both the parties share profit in proportion to their investment.

This instrument can also be employed for financing of

imports and exports. If the letter of credit has been opened without

any margin, the form of murabaah is adopted, and if the L/C is

opened with some margin, the form of mushārakah is observed.

After the import goods are cleared from the port, their sale

proceeds are shared by the importer and the financer according to

a pre-agreed ratio. In this case the ownership of the imported

goods remains with the financer, to the extent of the ratio of his

investment.

3. Redeemable Mushārakah:

In this category, the bank participates in the capital of a company,

or a business venture or agricultural project on the condition that it

will recapture its initial investment along with its agreed share in

the profit. The other partner or partners also promise at the time of

contract that they will purchase the share of bank in the investment

and will gradually become the sole owners of that project.

Suppose A, a client, owns a piece of land worth 100,000/- rupees.

He does not have money to construct house. So he approaches B, a

bank for finances. B agrees to provide required finance on the

condition that it will share the rent of that house and will also get

back its initial investment of Rs. 100000. They also agree that on

the return of B‟s capital, A, the client will become the sole owner

of that house. On the completion of house, rent is fixed, say, at Rs.

1000/- per month, which is to be shared by the parties in

proportion to their share in the investment. It is also agreed


276

between the parties that A, the client will pay to the bank after

every six month a sum of Rs. 20000 worth capital of bank B. The

client A pays first instalment of the capital to A on stipulated date.

This payment increases the share of A in the investment from Rs.

100000 to Rs. 120000 i.e. from 50% to 60%, and consequently his

share in the rent is also increased from Rs. 500 to Rs. 600. After

the payment of second instalment share of A in investment goes

up to Rs. 140000 raising his ratio of capital also to 70% while the

share of B, the bank is reduced to Rs. 60000/- and consequently its

share in rent is also reduced to that proportion. This process goes

on until after the payment of all instalments in a period of two

years and half, the client becomes the sole owner of that house.50

Conclusion

◘. Mushārakah is a relationship between persons to share profit

of a business.

◘ Mushārakah is based on the principle of agency.

◘ There are two main kinds of mushārakah, i.e., proprietary

partnership and contractual partnership.

◘ Contractual partnership is further divided into three kinds:

♦ Sharikat al-amwāl (investment partnership.

♦ Sharikat al-a'māl (work partnership).

♦ Sharikat al-wujūh (credit partnership)

◘ According to anbalī jurists muārabah is also a kind of

contractual partnership.

◘ In sharikat al-amwāl and muārabah it is necessary that the

capital should be in the form of money, present at the time of

contract. In case of muārabah the additional requirement is

that it should be handed over to the muārabah

◘ Entitlement to profit: A partner is entitled to profit in a

contractual partnership by capital, work and liability.

50

See Taqī Usmānī, Introduction to Islamic Finance, p.61.


277

◘ Sharikat al-amwāl may be concluded either in the form of

„inān or mufāwaah. In case of „Anān partnership, the

partners may contribute amounts and may share profits at

different rate while in mufāwaah they contribute equal

capital and get equal share of profit.

◘ In mufāwaah each partner provides surety for the other

partner because it is based on the idea of mutual surety.

◘ In all partnerships, the liability towards third party is several

but not joint, while in mufāwaah liability towards third

parties is several and joint.

◘ Sharikat al-a'māl (work partnership) is a partnership on work

and labour as the capital of partnership. According to the

Mālikī jurists the partners must belong to the same trade, and

they should work in one place. Besides, all he partners should

participate in actual work and should get profit according to

their work.

◘ In sharikat al-wujūh (credit partnership) profit flows from the

responsibility undertaken to provide capital from loans raised

by the partners on account of their goodwill or influence.

Chapter-17

Contract of Muārabah

Muārabah, qirā, and muqāraah‟ are different terms used to

express special type of the business arrangement in which the

capital is from one side while the labour or work is from the other

side.

The word muārabah‟ is derived from the phrase “al-arb fīl

ar” which means to make journey. It is called so because the

worker strives and toils in course of business. Likewise, the words

qirā and muqāraah are derived from the word qaraa‟ that

means to cut off. It is so called because the investor cuts off the

disposition of his sum of money from himself and transfers its

disposition to the agent.

Various Definitions of Muārabah

The following are the definitions of muārabah in different

schools of law.

anafī School

“It is a partnership (sharikah) for participation in profit in which

capital is from one side, whereas labour or skill („amal) is from the

other side.”1

Mālikī School

“Qirā is an agency for trading in delivered cash for a part of

profits if their extent is known”2

1 Ibn 'Ābidīn, Radd al-Mutār, 5: 645.

2 Kharshī 6:2

Contract of Murabah

280

Shāfi„ī School

It is an agreement whereby an owner hands over the capital to a

worker who trades with it and the profit is shared by the parties.3

anbalī School

It is where a person gives his capital to another person for business

in order to share the profit according to stipulation.4

Modern Definitions of Muārabah

A renowned scholar „Alī al-Khafīf has defined muārbah as

“contract for sharing the profit of a business in which one party

contributes with capital and other with his labour.”5

Dr. Rashād Khalīl, another scholar, has defined that it is a

contract whereby a legally competent person hands over a known

and defined capital to a person possessed with reason and

discretion to trade with it for a part of profit defined in

proportion.6

It is important to note here that Islamic Law, unlike English

Law does not differentiate between a company and partnership

firm. Therefore, muārabah can be a partnership firm as well as a

company. This difference has given rise to a controversy between

State Bank of Pakistan (SBP), Corporate Law Authority (CLA),

and the Finance Ministry as to which category of business

organization a muārabah will be referred to, and what rules of

taxation, tariffs and revenue will be activated against it. The stance

of CLA is that it is a financial institution like House Building

Finance Corporation (HBFC), whereas SBP is arguing that it is a

bank.

Legitimacy of Muārabah

The legitimacy of muārbah is established by the Qur‟ān, the

Sunnah and „ijmā‟.

3 Shirbīnī, Mughnī al-Mutāj, vol. 2 p. 309.

4 Ibn Qudāmah,, al-Mughnī,vol. I5,p.134.

5Alī al-Khafīf, al-Sharikāt fī al-Fiqh al-Islāmī,Cairo:1941, p.65.

6 Rashād Khalīl, al-Sharikāt fī al-Fiqh al-Islāmī, Maktabah Tawfīqiyyah,

Cario: 1399/1979, p.154.


281

Qur‟ān

The Qur‟ān says, “And others who journey through the earth

seeking the bounty”.7 Abū Bakr Jaa explains that they seek

bounty of Allah through trade and disposition.8

Sunnah

1. The Holy Prophet (s.a.w.s.) is reported to have said: “There is

great blessing in three things: The credit sale, the muārabah

and mixing wheat and barley for domestic consumption, not

for sale”.

2. The Holy Prophet (s.a.w.s) gave his tacit approval to the

conditions imposed by Ibn „Abbās (r.a.t.a.) who used to give

money on the basis of muārabah.

3. The aforesaid tacit approval has also been reported in the case

of Ibn izām (r.a.t.a).

4. The Holy Prophet (s.a.w.s.) himself acted as muārib

(agent/manager) for Khadījah (r.a.t.a.) prior to his marriage.

Ijmā

Many instances have been cited to prove that „Mudārabah‟ was a

lawful business and was frequently employed by companions of

Holy Prophet (s.a.w.s.). Some of the examples are the following:

Abū Mūsā, the Governor of Kūfā wanted to remit public money to

the Bayt-al-māl. He gave the amount to Abd Allah (r.a.t.a.) and

„Ubayd Allah (r.a.t.a.) sons of caliph Ùmar (r.a.t.a.). They traded

with it. The Caliph‟s assembly that comprised of many

companions of the Holy Prophet (s.a.w.s.) treated it to be an ex-

post facto muarabah and took half of the profits earned by two

brothers, in addition to the public money.9

It is also reported that Caliph 'Umar (r.a.t.a.) used to invest

orphan‟s property on the basis of muārabah‟.

7 Qur'ān 73:20..

8 Jaā, Akām al-Qur‟ān 3:45.

9 Shawkānī, Nayl al-Awār 5:236; Kāsānī, Badā‟i‟ vol.6, p.79,

Mālik ibn Anas, al-Muwaa , vol.2, p.987.

Contract of Murabah

282

Qiyās

As for as analogy is concerned, diverse views of scholars are

found. This diversity is because some say that muārabah defies

analogy while others allow analogy.

According to Imām Sarakhsī muārabah is proved by way

of juristic preference ( istisān) and not by analogy. He writes:

Analogy is not permissible, because it is hiring for unknown

wages, in fact for non-existent wages. The work too is unknown. It

is permissible on the basis of istisān.

He adds:

It is also allowed because people have a need for this contract.

The owner of capital may not find his way to profitable

trading activity, and the person who can find his way to such

activity, may not have the capital. And profit cannot be

attained except by means of both of these, that is capital and

trading. By permitting this, the goal of both parties is

attained.10

Elements of Muarabah

According to the anafīs, muārabah consists of only one

element, i.e. forms (offer and acceptance). This is provided in

Majallah, in the following words:

The essence of a muārabah is an offer and acceptance. For

example: If the owner of capital says to the person who

provides the labour “Take this capital and do the work and

labour in return, on the terms that the profits are to be divided

between us, half and half, or, as two to one,” or if he says

anything else which represents the meaning of a muarabah

like, “Take this money and make it capital and let the profit be

in common between us in this proportion,” and the muārib

(working partner) accepts, a contract of muārabah‟is

concluded.11

Shāfi„īs acknowledge five elements for a muārabah contract

namely:

(a) Parties to „muārabah contract („āqidān)

10

Sarakhsī, al-Mabsū, vol.22,p.19. 11



283

(b) Work/labour. („amal)

(c) Profit

(d) Capital

(e) The form (offer and acceptance)

In the opinion of the majority or jamhūr, muārabah has

three elements:

(a) Parties to muārabah contract. („Āqidān)

(b) Subject matter (ma„qūd „alayh)

(c) The form (offer and acceptance)12

Conditions Of Muārabah

Conditions relating to muārabah are of three kinds:

a) Conditions Concerning Partners:

The partners must have legal capacity to enter into a contract of

muārabah. This legal capacity includes competence to develop a

„Principal‟-„Agent‟ relationship. This requires that none of the

parties should be insane or minor or placed under interdiction

because of insolvency or weakness of intellect (safah). The

competency of a partner is codified in the Majallah as under:

It is a condition that the owner of property should be

competent to appoint an agent, and that the muārib

should be competent to be his agent.13

b) Conditions relating to capital:

The capital used in muārabah must fulfill the following

conditions;

(1) Capital must be in absolute currency. It must be in absolute

currency or in financial form or must contain money

properties (as economists call it). Merchandised form‟ or

goods are prohibited. However, anafīs and anbalīs allow it

in the case, financing partner first sells them out and then

gives money for business to his working partner. Some

details about it are given in the Majallah which are as

12

See Kāsānī, Badā‟i„ al-anā‟i„, vol. 6, p.87; Hāshiyat al-Dusūqī vol.3,

p.517. 13

Majallah , Article 1408.

Contract of Murabah

284

follows: “It is a condition that the capital be some kind of

silver or gold money.”14

“Brass coins which pass current are

by custom considered to be like silver or gold”.15

Goods and commodities are not regarded eligible capital in

muārabah partnership, because they render the amount of

profit uncertain which may lead to dispute and litigation

among the parties. Kāsānī Says:

The muārabah in goods leads to uncertainty concerning the

amount of the profit at the time of division. This is so because

the value of the goods is known only by estimation, chance

and conjecture and will differ with the difference of those who

do the estimating. An uncertainty in turn leads to dispute and,

consequently, to discord.16

They may also lead to inequitable advantage and undue

enrichment for one of the parties and converse disadvantage to the

other, because of the fluctuation of price of goods between the

date they are remitted to the agent-manager and the date of their

conversion into ready money. Writes Sarakhsī;

Since the profit in muārabah emerges only after the

investment has been returned, in fact to the investor, any

marked rise in the market value of goods serving as the basis

for the muārabah would cancel out any profit for the agent.

Any drop in the market value would put the investor at a

disadvantage and provide the agent with unjustified and, in a

sense, unearned profit.17

2. It should be known and defined in terms of quality and

quantity. An uncertainty and indeterminacy concerning the

amount of capital renders the contract invalid.

3. It should be ready cash, and not absent money in the form of

debt, or money usurped by someone. But it is permissible to

authorise a person to collect the debt and make it a capital of

muārabah. It is also lawful to the majority of jurists to start

14

Ibid., Article 1338. 15


Kāsānī, Badā‟i„ al-Sanā‟i„, vol..6,p.82. 17

Sarakhsī, al-Mabsūt, Vol. 22 P. 23.


285

muārabah with a capital lying as deposit with the agent

(muārib) or someone else. The investor in this case may

instruct the agent to collect the money from the depositor and

use it as capital of muārabah, or he may directly arrange

with the depositee to change the status of his capital from that

of a deposit to that of muārabah investment.18

The Mālikī jurists do not permit the shifting of capital in the

form of debt into muarabah capital. Udovitich explains the

position of Maliki Law on this point in the following words:

For a creditor to ask the debtor to use the amount of money

owed as a muārabah investment is not permissible because a

muārabah‟ cannot be formed with liable money, i.e., money

for which the agent has some liability. Undoubtedly another

reason for excluding this type of arrangement, although not

stated in the sources, is the easy abuse to which it could be put

in concealing a usurious loan.19

4. It should be handed over to the agent. All the Muslim jurists

are unanimous on the point that the transfer of control over

the money to the agent is pre-requisite for the validity of

Muārabah. This is necessary so that agent is able to trade

with it.

c) Conditions relating to profit:

The conditions of profit are as follows:

1. Both the parties should know it. It is not valid to leave profit

unsettled at the time of agreement.

2. Division of profit should be on proportional basis such as

one-half, one-third, one-fourth. It is, therefore, not

permissible to fix a specific amount as profit for one of the

contracting parties. In case all the profit is stipulated for

muārib, then it is no longer a contract of muārabah

instead; it is a contract of loan. This is the viewpoint of the

18

Ibid.; Shirbīnī, Mughni al-Mutāj 2:31; Dusūqī, Hāshiyat al-Dusūqi

3:518, Ibn Qudāmah, al-Mughnī 5:68 19

Uduvitch, Partnership and profit in Medieval Islam, p.187.

Contract of Murabah

286

anafi and anbalī jurists.20

According to the Shāfi'ī fuqahā

the contract of muārabah will become invalid because

muārabah requires proportional division of profit, which is

non-existent in this case. It cannot be called loan contract

also, because the contract was not concluded for that

purpose.21

If all the profit is stipulated for investor, then the

contract is no longer a contract of muārabah, rather it will

become an ibā„ activity.22

It is necessary that profit should

not be stipulated for one party, as also it is necessary that it

should be proportional. Any violation of proportional division

rule renders the muārabah invalid and in such case it is

treated as a regular hire (‟ijārah) with the agent entitled to an

equitable remuneration (ajr mithl) for his work, but thereby

disqualified from any share in the profit. On the other hand,

in case of loss, the agent is free of responsibility because in

this matter he is a trusted person.23

Types of Muārabah

Muārabah is of two types: absolute or unrestricted muārabah

and restricted muārabah. The absolute type is the one in which

the capital is handed over without determination of the type of

work that is to be done, the location, the time, the quality of work

and the person with whom the muārib has to trade.

Unrestricted Muārabah

It is also called unlimited mandate or perpetual or absolute

muārabah. The Majallah defines it in the following words:

Unrestricted muārabah is a muārabah, which is not

restricted in terms of time, place, kind of trade, or person from

whom he is to buy and to whom he is to sell. But if it is

restricted with one of these, it is a restricted muārabah. For

example: If one says, “Buy and sell at such a time or in such a

place, or sell such a kind of property, or, trade with such

20

Kāsānī, Badā‟i„ al-anā‟i„, Vol. 6, P 86., Ibn Qudīmah, al-Shar

al-Kabīr vol.5,p.131. 21

Shirbīnī, Mughnī al-Mutāj, vol. 2,p.313. 22

Kāsānī, Badā‟i„ al-anā‟i„, Vol. 6, P. 86. 23

Udovitch, Partnership and profit in Medieval Islam, p.191.


287

person or with the inhabitants of such a town,” It is a restricted

muārabah.24

The above mentioned definition imparts that if a muārabah

is free from restrictions regarding time, place, trade policy, and

person with whom business is to be done, it is called absolute or

unrestricted muārabah. The working partner in all such cases is

left exclusively on his own prudence and discretion. His authority

may extend from very minor issue to major issues in investing the

capital money for earning profit. Thus, the working partner has

every right to use money in the manner he deems fit. In such case

he is permitted to undertake all such transactions, which are

allowed in commercial usage.

Permissible Dispositions in absolute Muarabah

The Following are transactions and dispositions, which are

allowed for muārib;

1. To buy and sell all types of merchandise as he sees fit.

2. To buy and sell for cash and credit.

3. To give goods as biā„ah.

4. To keep them as deposit or pledge.

5. To hire helpers as needed

6. To rent or buy animals and equipments.

7. To travel with the capital.

8. To mingle it with his own resources

9. To give it as muārabah to a third party.

10. To invest it in a partnership with a third party.25

Summarizing the permissible dispositions of muārabah

Sarakhsī Writes:

If the investor says to the agent, “act with it as you see fit”,

then he may practice all of these things except the loan. For

the investor has consigned the control of his capital to the

agent‟s discretion in a comprehensive way; and we know that

his intention is the inclusion of all that is the customary

practice of merchants. The agent, thereby, has the right to

engage in muārabah, a partnership and to mingle the capital

24

Majallah, Article 1407, 25

Uduvitch, Partnership and profit in Medieval Islam, p.204.

Contract of Murabah

288

with his own capital because this is a practice of the

merchants.26

From this we may conclude that the validity of agent‟s action

will be determined by comparing his questioned action with the

customary practice of the merchants. If such action conforms to

the practice, then it is legitimate and binding upon the investor.

He, however, is not allowed to commit muārabah partnership to

any sum greater than the capital in hand without the investor‟s

specific authorization. Similarly, he is not permitted to borrow

money on behalf of muārabah unless he is specifically

authorized to do so.

Restricted Muārabah

Muārabah is restricted when the liberty of action of agent

(muārib) is restricted in terms of kind of trade, time, and place.

The restrictions allowed to be imposed by the investor are not a

matter of agreement among the jurists. For example, the restriction

to purchase from a particular person is permissible to anfīs and

anbalīs but not permissible to according to Shāfi„īs and

Mālikīs.27

The restriction to purchase goods from a particular place is

valid according to the anafī, anbalī jurists but not valid to

Malikis and Shāfi„īs. The condition to trade in particular

merchandise such as books, gold and silver is valid to all the

jurists. The Mālikī and Shāfi„ī jurists, however, suggest additional

condition that such merchandise should be habitually available in

the market.28

As regards restricting muārabah with a

predetermined duration, the Mālikīs and Shāfi'îs refuse to

recognize the validity of such condition whereas anbalīs and

anafis regard it to be valid.

26

Sarakhsī, al-Mabsū vol.22,p.39. 27

Sarakhsī, al-Mabsūt vol. 22, P. 42; Ibn Qudāma, al-Muhgnī

Vol.5, P.69, Ibn Rushd, Bidāyah al-Mujtahid, Vol. ,2 P.213,

Shīrāzī, al-Muhadhdab Vol.1 P. 392. 28

Dusūqī, Hāshiyat al-Dusūqī Vol.3 P.53, Shirbīnī, Mughnī al-

Mutāj, Vol. 2, P.311.


289

It is worth noting that when a muārabah is of predetermined

duration, this does not mean that the investor and the agent-

manager are precluded from making use of their basic right, that of

withdrawing from muārabah at will. It only means that the

agent- manager is not entitled, after the elapse of the pre-agreed

duration to continue performing act of commerce on behalf of

muārabah, if we accept the liquidation.29

From preceding discussion we may conclude that imposing

restriction on the activity of agent is permissible, provided these

do not grossly hamper and frustrate the purpose of muarabah,

which is to get profit.

Dissolution of Muarabah

The muārabah contract is dissolved under the following

circumstances:

1. Unilateral termination:

Since the contract of muārabah is a non-binding contract, any

partner can terminate it unilaterally provided the other partner is

made known of this decision and the capital is in the cash form.

However, if the capital is in the form of goods, the termination of

contract and the disengagement of agent by investor is not

allowed. In such case the agent has right to sell the goods in order

to reconvert them to cash.

2. By expiry of fixed time:

If the muārabah was for a fixed time, it will be terminated on the

expiry of that period. This is provided in Majallah in the following

words: “When the owner of the capital has fixed the duration of

muārabah, the muārabah is dissolved when the prescribed time

elapses”.30

3. By death of any of the partners:

If any of the partners in a muārabah dies, muārabah comes to

an end. Majalla puts it in the following words: “If the owner of the

29

Nabīl ali, Unlawful gain and Legitimate Profit in Islamic Law,

pp. 140-141 30


Contract of Murabah

290

capital, or the muārib (working partner) dies, the muārabah is

dissolved”.31

4. By Insanity of any of the partners:

In case any of the partners becomes insane the muārabah will

come to an end.

“If the owner of the capital, or the muārib, dies, or becomes

continuously mad the muārabah is dissolved”.32

5. By disregard of express direction:

The working partner is under the obligation to abide by direction

of financing partner in a restricted muārabah. Thus, if he does

not comply with these instructions the muārabah will be

dissolved by virtue of the breach of trust on which muārabah

stands.33

Majallah explains this point in the following words: “If the

muārib (working partner) goes beyond what he is permitted, or

acts contrary to the condition, he becomes a wrongdoer (ghāib).

In case he has done so, the profit and loss from the trading falls on

him, and if property of the partnership is lost, he is responsible”.34

6. By destruction of capital:

The muārabah is also dissolved by the destruction of capital

before initial purchase has taken place. The agent will not be held

liable for this destruction if he exercised maximum care. But if it

is destroyed due to his negligence or by some action on his part,

then he is responsible. However, the muārabah in all such cases

will stand dissolved.

Conclusion

◘ Muarabah is a partnership in which capital is from one side

whereas labour or skill is from the other side.

31




Ibid., Article 1421.


291

◘ The capital in this partnership must be in absolute currency, it

should be ready cash not in the form of debt and should be

handed over to the muārib.

◘ The division of profit should be on proportional basis such as

one-half, one third etc.

◘ Muārabah is of two types i.e. restricted and unrestricted.

◘ Muārabah is dissolved by unilateral termination, expiry of

fixed time, death and insanity of a partner and the destruction

of capital.

Chapter-18

Contract of Kafālah (Suretyship or

Guarantee)

Definition

Literally the word kafālah means joining and merging.

Technically it is defined as merging of one liability with another in

respect of demand for performance of an obligation.1 Thus, the

liability of principal obligor is merged with that of the surety for

the discharge of a pecuniary obligation or debt or the delivery of

property. According to this definition the claim or demand may be

addressed to both the surety and principal debtor. The creditor or

obligee can call upon either the original debtor or the surety to

perform the obligation. As regards debt the principal debtor

remains primarily liable for his debt.

Elements of Kafālah

According to majority viewpoint, contract of kafālah has five

elements:

(i) Kafīl or āmin (surety)

(ii) Makfūl bihī or mamūn (subject matter of Kafālah)

(iii) Makfūl „anhu or mamūn „anhu (obligor)

(iv) Sīghah,, i.e., offer and acceptance (form of contract)

(v) Makfūl lahū (obligee or creditor)

1 Marghinānī, al-Hidāyah, pp. 317,318.


294

Legitimacy of Kafālah

Kafālah is established by the Qur‟ān, the Sunnah and ijmā„

(consensus of opinion).

Qur‟ān

In Surah Yūsuf, the prophet Yūsuf (s.a.w.s) guaranteed to give a

camel-load to the one who would restore the missing drinking cup

of the king. The Qur‟ān: says " He who restores it, shall have a

camel-load, and I guarantee it.”2

Sunnah

(i) Holy Prophet (s.a.w.s) said “The guarantor is responsible”.3

(ii) It is narrated in aī Bukhārī that the Holy Prophet (s.a.w.s)

once refused to lead the funeral prayer of a person because he

had not paid off his debts. On that Abū Qatādah, a companion

of the Holy Prophet (s.a.w.s) undertook to pay his debt, so the

Prophet (s.a.w.s) accepted his guarantee and led the prayer.4

Ijmā‘

Besides, there is a consensus of opinion among all Muslim jurists

that kafālah is a valid contract because it serves the need of the

people. It secures the right of the creditor and repels harm from the

debtor.

Kinds of Suretyship

Suretyship is of two kinds:

(1) Kafālah bi al-nafs, i.e., suretyship for the person.

(2) Kafālah bi al-māl, i.e., suretyship for the property or the

surety for the discharge of claim.

1. Kafālah bi al-Nafs:

This is a contract whereby the surety undertakes to produce the

person. This is generally required when a person becomes surety

2 Qur‟ān 12:72.

3 Ibid., vol. 5, p. 314.


Contract of Kafālah (Suretyship or Guarantee)

295

to produce an accused person before the court of law. The kafālah

for person is lawful in the opinion of all jurists except Imam

Shāfi„ī who is of the view that surety for the production of person

cannot exercise authority over the accused person and as such it is

not valid.5

2. Kafālah bi al-Māl:

It is the suretyship for the satisfaction of claim whereby the surety

may be called upon to perform the obligation of the principal

debtor if he makes default in the payment of his debt. Kafālah bi

al-Māl is further divided into following kinds:

(i) Kafalah bi al-dayn (suretyship for debt): It means to

guarantee the payment of debt to the creditor owed by the

principal debtor.

(ii) Kafālah bi al-Taslīm (Suretyship for possession): It is to

be surety to deliver property to its owner such as to be

surety on behalf of a lessee to transfer possession of

leased property to the lessor or his agent on expiry of the

lease period.

(iii) Kafālah bi al-dark: Kafālah bi al -dark is a guarantee by a

seller that he will return the price of object if it is taken over

by somebody else in exercise of his better right. It is also

defined as a “guarantee in favour of seller that if the title of

the seller is defective, the surety will make good the loss

suffered by the purchaser on that account".

Contract of Guarantee in English Law:

Contract Act 1872 describes a contract of guarantee and its related

terms in the following words:

A Contract of guarantee is a contract to perform the promise,

or discharge the liability of a third person in case of his

default. The person who gives the guarantee is called “surety”,

the person in respect of whose default the guarantee is given is

5 Shirbīnī, Mughnī al-Mutāj, vol. 2, p. 203; Shīrāzī, al-Muhadhdhab,

vol. 1, p. 342.


296

called the “principal debtor” and the person to whom the

guarantee is given is called the creditor.6

This definition suggests that a surety can undertake to

perform the promise, i.e., to discharge the liability on behalf

of the principal. The Pakistani Law relating to guarantee

provides the following three types of guarantee:

1. General Guarantee: It is a guarantee, which is given for all

acts and obligations of a person(s). It is usually without any

condition and restriction.

2. Specific Guarantee: When a guarantee is given for a specific

transaction only, it is called specific guarantee.

3. Continuing Guarantee: It is provided in Sec-129 in the

following words: “A guarantee, which extends to a series of

transactions is called continuing guarantee”.7.

Rules of Kafālah

Following are some important rules of the contract of kafālah.

They relate to makfūl „anhu (Principal debtor or obligor), kafīl

(surety) makfūl lahū (creditor or obligee) and makfūl bihī (subject-

matter)

Kafālah for principal debtor who dies insolvent

According to Imam Abū-anīfah a suretyship for a principal

debtor who dies in a state of insolvency is not valid, because he is

unable to perform his obligation. It is a debt, which stands

discharged after his death. But if a person dies solvent, he will be

considered capable of performing his obligation. Imām Abū

anīfah interprets the suretyship of Abū Qatādah as an

acknowledgement of an old suretyship concluded between him

and the deceased (principal debtor) during his lifetime. In

opposition to this view, Imām Abū Yūsuf and Muammad hold

that Kafālah for an insolvent deceased is valid, because death does

not discharge the liability of an insolvent debtor. Commenting on

the adīth of Abū Qatādah they say that the Holy Prophet (s.a.w.s)

6 Contract Act, 1872, Art 126.

7 Contract Act, 1872, Art 129.


297

had urged his Companions to become surety for the debt of

deceased person. He had asked them to undertake the payment of

debt at the time of funeral prayer. The undertaking and suretyship

of Abū Qatādah was in response to that appeal. It was not an old

suretyship concluded during lifetime of debtor, as understood by

the other jurists. This is an evidence of the fact that the debt

existed and was not annulled by the death of the principal debtor.8

Another proof of the existence of debt is that if a person

accepts the payment of debt voluntarily on behalf of deceased, it is

lawful for creditor to demand from him. This also proves that the

deceased is not released from his liability in any manner.

The possibility of there being an old suretyship in the adīth

of Abū Qatādah has been ruled out by the majority. They say that

another adīth makes manifest that it was creation of new

suretyship. adīth discloses that Abū Qatādah voluntarily became

surety for the undischarged liability of the deceased debtor.9

The stand point of Imām Abū anīfah has been explained by

the author of “I„lā al-Sunan” in the following words: “If the

purpose of kafālah of deceased is to safeguard and secure

creditor‟s right and to provide him a right to claim his debt from

surety, then such kafālah is invalid because obligation of kafālah

is to share the responsibility of the principal debtor regarding the

repayment of debt while in case of the death of the principal

debtor, his liabilities die with him. But if kafālah of deceased

means to discharge principal debtor from the accountability in the

hereinafter without acknowledgement of right of creditor to claim

his debt, then such kafālah is lawful.10

Ibn Qudāmah, a anbalī jurist has concluded from the adīth

of Abū Qatādah that kafālah is valid for everyone who is under

some obligation regardless of whether he is alive or dead, solvent

8Kāsānī Badā‟i„ al-anā‟i„, vol.6 p.6; Ibn Rushd, Bidāyat al-Mujathid,

vol.2,p.294.


10

Zafar Amad „Usmānī, I'lā al-Sunan, Karachi: Idārah al-'Ulūm al-

Islāmiyyah, vol.14, p. 496.


298

or insolvent because adīth is absolute and does not make any

distinction between solvent debtor and insolvent debtor.11

The conclusion of this discussion is that in the opinion of

Imām Abū anīfah kafālah for insolvent deceased is not valid

while according to majority it is valid for every debtor. In former

case surety cannot claim its reimbursement of what he paid, and in

the latter case he is entitled to claim.

Imām ibn azm is of the view that if the debtor dies

insolvent, there is no need for kafālah on his behalf and he will not

be accountable in hereinafter because he was not able to discharge

obligation during his life time. So far as the rights of creditors are

concerned, their debts are payable from zakāt property as the

payment of debt from zakāt property is also permissible.12

Rules Relating to Surety

Since the contract of suretyship creates a liability for surety, it is

necessary that he should be legally competent to enter a contract.

Legal competence in the context of suretyship is defined as sanity,

puberty and capacity to wisely handle financial matters. Following

persons are considered to be incompetent for the purpose of

suretyship.

1. A Minor insane, idiot and all other persons suffering from any

legal disability: A minor insane, idiot and all other persons

suffering from any legal disability with regard to incurring of

financial obligation cannot become sureties for any person. A

suretyship by a minor is invalid regardless of whether he is

authorized for business by his guardian. He cannot undertake

any guarantee even with the permission of his guardian

because the guardian is not authorized to approve of any

action of the minor that involves any financial loss to him.

Such suretyship would be invalid even if the surety on

attaining puberty acknowledges the existence of suretyship

because such suretyship does not exist in the eyes of law. But

if a guardian borrowed something for providing necessities of

11

Ibn Qudāmah, al-Mughnī, vol. 4, p. 593. 12

Ibn azm, al-Muallā, vol. 5, p.164.


299

life to an orphan and asked that orphan to be surety for this

debt, this is lawful. Likewise if a father purchased something

on credit for his minor child who also owns property and

instructed him to undertake the payment of debt as his surety,

it is valid because he has undertaken a liability which existed

even before this suretyship on account of being owner of

some property and the guardian or father was entitled to

recover what he spent on him from his property.

2 A person on deathbed: A person on deathbed can be a surety

but such suretyship is enforceable only to the extent of one

third of the property. If such a person declared that he had

undertaken this liability while legally competent, then the

suretyship can extend to whole of his property.

3. A person placed under interdiction: According to Imām

Amad ibn anbal a person who is suffering from a legal

disability on account of being spendthrift is not competent to

be surety because by this contract he undertakes a financial

liability, which is harmful to him. On the other hand an

insolvent person can be a surety, because insolvency by itself

is no bar to the contract of suretyship. He can be pursued after

the removal of insolvency.13

Rules Related to the Makfūl Lahū (Creditor)

1. The obligee or creditor should be known to the kafīl, because

without this the objective of suretyship i.e. the security of

right cannot be realized. This purpose can be attained only

when the person whose right is secured through the contract

of suretyship is known to kafīl.

2. According to Imām Abū anīfah and Imām Muammad

makfūl lahū should be present in the session of contract. In

this respect they hold that if creditor is not present in the

session there must be someone to approve the contract on his

behalf. The reason is that kafālah involves a contract, which

entitles creditor to claim his debt from the surety. This

necessitates offer from the surety and acceptance from the

13

Ibn Qudāmah, al-Mughnī, vol. 5, p. 598.


300

creditor. But according to Imam Abū Yūsuf kafālah does not

require acceptance by the creditor. Kafālah only conveys the

meaning of junction, which is realisable by the unilateral

declaration of Kafīl. Therefore, his offer alone is valid for the

completion of suretyship and the presence of the creditor is

not necessary.14

Rules Related to Makfūl Bihī (Subject-matter)

1. Kafālah or suretyship is permissible in respect of all

pecuniary claims related to the enforceable rights of the

creditors such as the amount of loan, price of a commodity in

credit sale, rent of leased property, commodity in bay„ salam,

amount of dower, blood-money, value of usurped property,

remuneration or wages of a worker.

2. Suretyship for the property held by somebody in a fiduciary

capacity is not permissible such as:

1. deposits;

2. capital of muārbah and partnership;

3. loan for use or commodate loans;

4. hired property; and

5. property of the seller taken by a person with an intention

to purchase it before the price is mentioned to him.

3. Kafālah bi al-Taslīm (Suretyship for possession): Suretyship

for giving possession is valid, and the surety will be bound to

ensure the delivery of possession. In the case of surety for the

production of a person, the surety is released from his

responsibility by the death of the person. In the same way, the

suretyship for possession comes to an end when the

reversionary claim expires.

4. It should be an established debt. A debt, which has not been

established, yet in the dhimmah of a person, cannot be the

subject matter of suretyship. Therefore, suretyship for

maintenance of wife before it is fixed by the court or mutual

agreement is not valid because it becomes an established debt

only when it is decided by court or by mutual agreement

14

Ibn Humām, Fat al-Qadīr, vol. 5, p. 390.


301

between husband and wife. On the other hand suretyship for

dower (mahr), price of sold property, debt of salam is valid as

these are the established debts and there is genuine need to

secure them.

5. It is not a condition that the extent of debt be known to the

surety. The suretyship is lawful for an unascertained amount.

The reason is that suretyship rests upon a broad foundation

and a small degree of uncertainty does not vitiate it.

The author of Badā‟i„ al-Sanā‟i„ constructs his arguments in

favour of suretyship for unknown and undefined property on the

saying of God: “He who restores it shall have a camel load”. Here

God has permitted kafālah for camel load, which is unspecified.

He also takes its validity from a adīth of the Holy Prophet

(s.a.w.s) in which he declared “He who died and left any debt

unpaid, I am responsible for its payment”. Here the Holy Prophet

(s.a.w.s) guaranteed payment of an unascertained debt.15

6. Suretyship in crimes is not valid. The suretyship for any right,

the fulfillment of which is impracticable by means of

suretyship, is not valid, as in cases of add punishments or

retaliation because substitution and proxies are not admitted in

case of corporeal punishment. But guarantee for the

production of persons of criminals under the sentence of such

punishment is lawful.

The Majallah explains this point in the following words:

In punishment a substitute is not allowed. Therefore, to

become surety for carrying out a death penalty or punishment

for personal correction is not valid. But it is lawful to become

surety for the payment of money as penalty imposed on the

culprit in case of murder and injuries.16

The prohibition of kafālah in add punishments is founded on

the following grounds:

1. It does not stand to reason that a person who is not criminal

should substitute a criminal for imposition of punishment.

15

Kāsānī, Badā‟i„ al-anā‟i„, vol.6, p.6. 16



302

2. Holy Prophet (s.a.w.s) said; "No kafālah in add punishment”

3. In case of add punishments the Sharī„ah stresses the

annulment of add for doubts and not the imposition of

punishment while the suretyship requires performance of

obligation.

Suretyship for production of person in case of retaliation, (qiā)

and slander (qadhf) can be exacted according to Imām Shāfi„ī.17

Imām Abū anīfah on the other hand, holds the view that if such

criminal gives in voluntary manner bail of himself, it is admissible

but judge cannot compel him to exact it. It is allowed in cases of

retaliation and slander and theft to some jurists, because here the

right of individual prevails over the right of Allah. That is why suit

in such cases must be instituted by the victim. Here the stress of

the Sharī„ah is on the imposition of punishment. This, the

suretyship that criminal will be produced in the court is relevant

and necessary for security of the right of aggrieved party.18

Legal effects of Suretyship

The effects of suretyship are as follows:

1. Right of creditor to claim his debt from surety is established.

However, he is at liberty to demand payment either from

principal debtor or from his surety.

2. In case of suretyship for production, the right of court of law is

established to demand the production of accused person in the

court.

3. In case of suretyship for possession, surety is required to give

possession of property to its owner.

Contract of suretyship does not imply the release of the

principal debtor from his liability. If the release of the principal

debtor is stipulated in the contract, in such case the contract will

become a contract of awālah. Imām Shāfi„ī does not validate

such a stipulation as it is inconsistent with the purpose of

suretyship. The majority also does not favour the release of the

17

Shirbīnī, Mughnī al-Mutāj, vol. 2, p. 203. 18

Zuhaylī, al-Fiqh al-Islāmī, vol. 5, pp. 145-146.


303

principal debtor. This viewpoint is founded upon a tradition of the

Holy Prophet (s.a.w.a.) in which he said, “the soul of a believer

does not rest until his debts are paid”19

. From this it is established

that the principal debtor is not released as a result of the contract

of suretyship and the creditor can claim his debt from any of the

two persons, i.e., surety and principal debtor.

1. In the case of suretyship for production of a person, if that

person dies, the surety is released from his responsibility.

2. The death of the surety also terminates the contract of kafālah

bi al- nafs. (suretyship for production of person).

3. In the case of suretyship for property if the surety dies, the

suretyship is not terminated. The debt can be collected from

his property. If the creditor dies his heirs or executors may

demand the discharge of the obligation.

4. The surety in the contract of suretyship for production is

released by producing the accused person in the court of Law.

The effect is also the same in case that person himself appears

before the court.

5. In case of suretyship for property, the surety is released from

his liability by the payment of the debt regardless of whether

the payment is made by the principal debtor or the surety.

6. He is also released when the creditor absolves the surety or the

principal debtor from the liability of payment of debt, and

forgoes his claim against the debtor.

7. In case of suretyship for giving possession the surety is

released from his liability by handing over the property to its

owner.

Right of surety to claim reimbursement of what he paid, is

established. However, claim is established only after the payment

of debt, not before.

19

Abd al-Laīf Āmir, al-Duyūn wa uruq Tawthīquhā fī al-Fiqh al-

Islāmī, p. 212.


304

Conclusion

◘ Islamic Law has introduced a number of contracts to

safeguard the right of creditor and to ensure the safe return of

his amount of capital. These contracts are:

♦ Kafālah ( suretyship)

♦ awālah( assignment of debt)

♦ Rahn (pledge)

◘ Kafālah means merging of one liability with another in respect

of a demand for performance of an obligation.

◘ Kafālah is of two types i.e. suretyship for production of person

and suretyship for Property.

◘ Kafālah for principal who dies insolvent is not valid in

the opinion of Imām Abū anīfah. According to other

jurists such kafālah is permissible.

◘ Kafālah is permissible for the pecuniary obligations and

debts due on the principle, not for the property held on

trust.

Chapter-19

Contract of awālah (Assignment

of debt)

awālah is an effective mode for the security of debts. The word

awālah is derived from tawīl, which conveys the meaning of

shifting a thing from one place to another. In the language of law it

means “the shifting or assignment of debt from the liability of the

original debtor to the liability of another person”.1 It can also be

defined as substitution of one obligor for another with the

agreement of the creditor. The purpose of awālah is the payment

of debt through the assignment of a claim. The meaning of

awālah can be understood by the following illustrations:

(i) A is indebted to B and has a claim against C. He can settle his

debt by transferring his claim against C to the benefit of B.

(ii) A has debt owing to him from B and owes debt to C. C,

instead of realizing from A and A his debt from B, can realize

it from B through the contract of awālah. In this case debtor

B is substituted for debtor A with the agreement of C. A is

discharged.

The debtor who transfers debt is called muīl (debtor-

assignor), the creditor muāl (creditor-assignee) and new debtor to

whom transfer is made, muāl„ālayh (transferee).

1 Zayla„ī,Tabyīn al-aqā‟iq, vol. 4, p. 1717.


306

Lane provides three forms of transfer while discussing the

nature and scope of awālah. These forms are as follows:

(1) The transfer of a claim of debt by shifting the liability from

one person to another.

(2) The transfer of a debt by shifting the liability of him who

transfers it to whom it is transferred.

(3) An order for the payment of debt or of a sum of money, given

by one person, upon another, to a person.2

Validity of awālah

Following are some traditions, which establish the validity of

transfer of debt, i.e., awālah.

It is related by Abū Hurayrah (r.a.t.a.) that the Holy Prophet

(s.a.w.s) said: “To evade and defer (payment of loan) on the part

of a person who is rich, is tyranny. If loan is transferred to a rich

person he (the transferee of liability) should be pursued (for its

payment)”.3

It is narrated by Ibn „Umar (r.a.t.a.): “To evade and defer

(payment of loan) on the part of rich person is cruelty. And if it

(liability) is transferred to a rich person, he should be followed”.4

Several inferences can be drawn from these traditions:

1. It is lawful to transfer one‟s debt from one to another.

2. In case of transfer of loan from the debtor to the transferee,

the latter should be asked to pay as he substitutes the debtor.

3. After the transfer is made, the original debtor may be

discharged from his liability towards creditor whose interest

is safeguarded by the transfer of debt.

4. The transfer of loan from the debtor to the transferee requires

consent of all, i.e. debtor, creditor and transferee.

2Edward William Lane, Arabic-English Lexicon, S,v.“AWĀLAH”.

3 San„ānī, Subul al-Salām , vol. 3, p.61.


Contract of awālah (Assignment of debt)

307

5. The creditor should accept the assignment of debt and pursue

the new debtor for collection of his debt as long as the

assignment is to a solvent person.

The negotiability or assignability of debt in the history of

Islam is as old as Islam itself. It started with the undertaking by a

man of means to pay the debt of another in straitened

circumstances and developed into a medium of commercial

transactions. In this age also negotiability of instruments of loan is

of utmost importance in all commercial-cum-banking transactions.

awālah has the ingredients of guarantee. An instrument is also

negotiated for the purpose of guaranteeing or securing the

payment of the loan due on a promissory note, a cheque or a bill of

exchange. As such, when A, a drawer, draws a bill upon B

ordering him to pay C, he in fact guarantees him, i.e., C the

payment of his debt due on A. Similarly when A, a holder of

instrument negotiates it to B, he secures the payment of debt due

on the bill. An acceptor of an instrument after accepting it

becomes primarily liable while a drawer‟s liability becomes

secondary and conditional. In the same way a transferee in a

contract of awalah becomes primarily liable.

Imām Abū anīfah‟s Viewpoint Regarding awālah

Imām Abū anīfah defines awālah as a transfer of debt,

terminating the liability of the original debtor, to a third person.5

This definition implies that after the conclusion of awālah the

principal debtor will be relieved from the liability. He argues that

the term awālah is derived from the word tawīl, which

necessitates the transfer of debt to the transferee and the

exemption of the transferor. The transferor is also exempted

because of the acquiescence of the transferee.

Imām Muammad‟s viewpoint

Imām Muammad is of the opinion that awālah is the transfer of

demand only while the actual burden of payment rests with the

principal debtor.6

5 Kāsānī, Badā‟i„ al-anā‟i„, vol.6, p.17.

6 Ibn Nujaym, Bar al-Rā‟iq, vol. 6, p. 344.


308

Imām Zufar also maintains that the transferor is not exempted

because of the analogy that subsists between his case and that of

bail, for both are contracts of bail. The person who is bailed is not

exempted from the debt so neither should the transferor.7

In fact awālah is different from suretyship in the sense that

in the contract of suretyship or bailment if the creditor releases the

original debtor from his liability, the same will be applicable to his

surety and as such he will automatically be released from his

liability towards his principal debtor. On the other hand, in a

contract of awālah if the creditor releases the original debtor

from debt, this release may not necessarily extend to the

transferee. He remains under obligation to pay the debt until he is

also released expressly by the creditor.

Effects of awālah

Normally the effect of awālah is to discharge the debtor (muhīl)

from the debts he owes to the creditor/assignee (muāl lahū).

awālah can also occur with the condition that the debtor/assignor

(muīl) shall remain liable for the debt, in such case awālah is

similar to a guarantee. Thus, the creditor/assignee has the right to

claim settlement from either debtor/assignor or the substituted

debtor.

According to Imām Amad ibn anbal and Imām Shāfi„ī,

when the new debtor is solvent, the creditor/assignee has no

recourse what so ever against the creditor/assignor in the event

that the debt is not settled by the substituted debtor. Thus, the

discharge of the debtor/ assignor is total and irrevocable unless his

guarantee was obtained especially for the case of non-payment by

the substituted debtor. This is substantially the opinion of the

Mālik, with the difference that for Mālik the creditor/assignee has

the right of recourse against the debtor/assignor in the case of

misrepresentation in assignment to the new debtor who was

already bankrupt before the awālah was concluded.8

7 Kāsānī, Badā‟i„ al-anā‟i„, vol. 6, p.18; Ibn Nujaym, al-Bar al-Rā‟iq

vol. 6, p.344. 8 Khattāb, Mawāhib al-Jalīl, vol.5, p.95.


309

For the anafīs, awālah, in principle discharges the debtor-

assignor with the exception that the creditor/assignee (muāl lahū)

has a right of recourse against him in the event that his claim is in

danger of failing either for the reason that the new debtor is

insolvent or because he renounces the existence of awālah and

the creditor has no proof thereof.9

Kinds Of awālah

awālah is either absolute (mulaq) or conditional (muqayyad).

Absolute awālah refers to that contract where payment is not

restricted to the property of the transferor in the hands of

transferee.

awālah is conditional when it contains a stipulation that the

creditor's debt may be paid up from the debt of the debtor due

from the transferee or anything belonging to the debtor, which is

in possession as a security with the transferee. All other forms of

awālah are unrestricted and absolute.10

This distinction is the creation of anafī fiqh but the other

three Schools do not subscribe to awālah mulaq as awālah. The

effect of the two categories determine the validity of other

classification i.e. awālat al-aq and awālat al-dayn because

awālat al-aq is a form of awālat mulaq.

It is to be noted here that in awālat al-aq, the right of

creditor in the debt due from the debtor is transferred to a new

party. It is against awālat al-dayn in which the liability is

transferred to a new party. While discussing the subject our

primary concern will be the awālat al-dayn, i.e.,the assignment

of liability or debt.

Rights and Duties of Parties

1. In an absolute awālah, the transferee, after making payment to

the creditor steps in the shoes of the creditor as against the

original debtor.

9 Nabīl āli, Unlawful Gain and Legitimate Profit in Islamic Law,

p. 105. 10

Majallah, Artical 678 - 679.


310

2. In a restricted awālah the right of the debtor to property in

possession of transferee, ceases. Thus, if the transferee after

accepting the liability returns the property to debtor, he will

remain liable to perform his obligation towards the creditor.

However, after making payment to him, he can claim his

money from the debtor.

3. The jurists differ among themselves regarding a awālah which

is with condition that creditor‟s debt may be paid up from the

debt of the debtor due from transferee or from the property

belonging to the debtor in the hands of transferee, and the

debtor died before the payment. The question here is as to who

has the superior right to this property: the creditor of awālah

or other creditors of the debtor?

Majority of the anafī jurists hold that all creditors are equal

as far as this right is concerned. Thus, if this property is distributed

and the creditor gets some portion of it, he cannot demand the

remaining from the transferee, as the awālah was restricted with

that property only.11

On the other hand Imām Zufar is of the view that the right of

creditor of awālah is superior to other creditors, as the right of

creditor was attached to property, and the property in question is

no more his property because he isolated himself from it in his

life. The same situation continues to exist after his death.

Moreover, the right of the creditor of awālah was attached to it in

the debtor‟s life, while the right of other creditors was attached

after his death. As such former‟s right is superior to latter‟s right

like the right of pledgee over the pledged property.12

4. If awālah was with a condition that the transferee would

make payment from the amount realised from purchaser in a

credit sale. Then the subject matter is destroyed before

delivery to the purchaser or it is returned by him exercising

his option of inspection or defect, in such case, the awālah is

still valid and the transferee is liable to pay. However, after

11

Kāsānī, Badā‟i„ al-anā‟i„, vol. 6, p.16. 12

Ibid.


311

the payment he can claim it from the transferor. This means

that the transferee (new debtor) is liable to honour his

commitment even if the cause of his obligation ceases to

exist.

How is awālah concluded?

The different modes of concluding awālah are as follows;

(a) awālah with consent of all the parties: By concerned parties

is meant the debtor/assignor (muīl), the creditor/assignee

(muāl Lahu) and the substituted debtor. This is in principle

an ideal situation where all concerned parties' consent to the

substitution of a new debtor for the original debtor;

(b) awālah by agreement of the creditor and the new debtor:

The original debtor does not participate in this sort of

awālah, which is not of common occurrence but can still be

encountered. This is lawful according to anafī jurists;

(c) awālah by agreement of debtor/assignor (muīl) and the

creditor/assignee (muāl lahū): For the anafīs this is

contingent upon the new debtor‟s agreement. To others his

consent is not necessary, especially when he is solvent; and

(d) awālah by agreement of the debtor/assignor (Muīl) and the

new debtor (muāl alayh): This awālah is contingent upon

the creditor‟s agreement according to anafī, Shāfi„ī and

Mālikī jurists. anbalī jurists hold that when the new debtor

is solvent his consent is not necessary.13

Legal Capacity of the Parties to awālah

The anafī jurists differentiate, in terms of legal capacity, between

the transferee on the one hand and the creditor/debtor on the other.

1. As for the transferee, they postulate that he should be sane

and of age. A discerning minor (abī mumayaiz) is not legally

competent to accept the awālah; because such awālah may

entail risk or financial loss for the minor assuming the

13 Nabīl āli, Unlawful Gain and Legitimate Profit in Islam, pp.

103,104.


312

position of transferee. If he accepted the awālah on the

demand of the transferor then it is a gratuitous act in its

beginning though he may get it back at the end. But if he

undertook this liability without the acquiescence or orders of

the transferor then it is by every respect (by its beginning and

end) a gratuitous act quite identical to giving the gift, which

is not permissible for a minor. A guardian of a minor cannot

also accept awālah on behalf of his ward, as it is a harmful

act, for which he has no authority.

In a restricted awālah where the transferee has a debt due

from the transferor, the condition of puberty and sanity is

not necessary to some jurists as in such awālah the

transferee is already under obligation to pay the debt or to

deduct what he paid from the property of the transferor.

2. As regards the capacity of the creditor and the debtor

(transferor), their ability of discretion and understanding is

sufficient for the conclusion of awālah. However it will

remain suspended upon the approval of the guardian.

This is quite a logical and reasonable viewpoint because

awālah does not create any liability for them rather it

benefits them. The transferor is a beneficiary because he is

exempted from his liability while the creditor, as a result of

such contract, ensures the recovery of his debt. However, if

the creditor fails to recover this debt due to the transferee

being less prosperous than the transferor, then the law gives

him right to have recourse to the original debtor. Therefore a

minor with discretion after he has obtained the approval of

his guardian, can transfer his debt in the same manner as he

can accept the transfer upon some third party, if he is a

creditor. In the later case the person to whom the minor has

transferred must be more prosperous than the debtor. In

Islamic law the guardian of the property of minors is allowed

to undertake only those transactions, which are unequivocally

in the minor‟s best interest. In disposing of their property the

guardian or father is not permitted to take the risk of

accepting the awālah to a person who is less prosperous

than the purchaser.


313

Circumstances under which absolute awālah is terminated

According to Imām Abū anīfah, contract of awālah is

terminated and debt reverts to the principal debtor in the following

circumstances:

(i) Where the transferee denies the existence of the contract

upon oath, and the creditor cannot produce witnesses to

prove it.

(ii) Where the transferee dies poor and insolvent. In either

case the debt is destroyed, since in neither case is it

practicable for the creditor to receive payment from the

transferee. 14

View point of Abū Yūsuf and Muammad

Imām Muammad and Imām Abū Yūsuf maintain that awālah is

terminated under one of three circumstances. Of these, two are the

same as those above cited and the third is a declaration by the

court of the poverty and insolvency of the transferee during his

lifetime. This third circumstance is not admitted by Abū anīfah

because according to his doctrine, poverty and insolvency cannot

be established by the decree of court, since property comes in the

morning and goes in the evening. But according to the two

disciples the decree of the court can also establish poverty. Before

this declaration the creditor is not entitled to make any claim

against the transferor.

Imām Shāfi„ī holds that the creditor has no right to make any

claim for his due upon the transferor, although his right is

destroyed. It is because in consequence of the transfer the

transferor becomes exempted from the debt and this exemption is

absolute and not restricted to the condition of payment from the

transferee. Hence the debt cannot revert to the transferor, except

on account of some new cause and no such cause is to be found in

this case.

The argument of the anafī jurists is that although the

exemption be absolute in the terms of the contract yet it is

14

Marghinānī, al-Hidāyah, vol. 3, p. 99.


314

restricted in the sense, by the condition of right being rendered to

the creditor. The contract is, therefore, cancelled in case of his

right being destroyed; because the contract is capable of

cancellation, and may be cancelled by the agreement of the parties.

Moreover, the condition of the safe delivery of the debt to creditor

is equivalent to that warranting the subject of a sale to be free from

blemish. Such a warranty implicitly exists as a condition in every

sale although it may not be specifically mentioned. In the same

manner the security of the debt exists as a condition in a contract

of transfer although not specified in it.15

Termination of restricted awālah

1. If awālah was with condition that payment is to be made

from property of the debtor-assignor in possession of the

transferee, and then a person who was the rightful owner of

that property turned up and took its possession, the awālah is

void and the debt is returned to the debtor who made the

awālah. In other words, restricted awālah is terminated

when the property in the hand of transferee does not belong to

the assignor and is taken possession of by its owner.

2. It is terminated, if the property held by the transferee in

fiduciary capacity is destroyed without any negligence on part

of transferee.

3. It is not terminated in the following two cases:

(a) If the property was held in trust, and destroyed by

negligence.

(b) It was a property of assignor usurped by transferee.

Comparison between awālah and Negotiable Instruments

1. In Islamic Law awālah is introduced to guarantee the

payment of debt on behalf of the original debtor. An

instrument is also negotiated for the purpose of guaranteeing

or securing the payment of loan due on a bill of exchange or

promissory note.

15

Ibid.


315

2. In the opinion of majority the valid form of awālah is the one

in which the transferee of liability is the debtor of the original

debtor. In other words the awālah must be with

consideration. The same is the position in the negotiable

instruments. It is presumed that every negotiable instrument

when it has been accepted, endorsed, drawn, or made was

accepted, endorsed, drawn or made for consideration.16

3. In anafī Law it is not necessary that the transferee be the

debtor of the original debtor. He may accept the liability

voluntarily. The section relating to acceptance for honour and

payment for honour with reference to promissory note and bill

of exchange conveys the same sense.17

4. In Islamic Law a thing for which a awālah is made must be a

debt. Negotiable instruments are also restricted to dealing in

money only.

5. The drawing of a bill or instrument by one bank on another for

the benefit of a third person would be awālah. According to

the anafīs and those who agree with them it is immaterial

whether the drawee is a debtor of the drawer or not because

for them it is not a condition that the transferee should be

debtor of the transferor but the acceptance by a drawee is a

condition precedent for implementation of awālah. The

majority of the jurists do not treat acceptance by the drawee as

essential if he is indebted to the transferor or drawer in the

same amount. According to this view it becomes a awālah

only if the person in whose name the bill of exchange is made

payable, is a creditor of the drawer. In case he is not a creditor,

the bill creates an agency in which the drawer shall be the

principal and the payee shall be his agent. In this case it will

be possible to call the instrument as a bill of exchange.

6. About the right of a third party the position of the Act is the

same as that of Islamic Law. If the obligation of the drawer

towards the first payee terminates or becomes void and the

16

„Abd al-Laīf „Āmir, al-Duyūn wa Tawthīquhā fī al-Fiqh al-Islāmī,

Cairo: pp. 160,161. 17

Negotiable Instruments Act, Section 108 (a).


316

payee then endorses the cheque or any other negotiable

instrument in favour of a holder in due course and the latter

demands its payment or reimbursement from the drawer, the

drawer is stopped from pleading termination of his liability as

the right of the third person has accrued in this case. Thus, if A

draws a bill on C. Later on the obligation of the A towards C

becomes void, and C then endorses it in favour of D, who is

holder in due course. A‟s liability towards D is not

terminated.18

In Islamic Law, also, the transferee of liability of the debtor is

not competent to defend against the claim of the creditor by pleas

with which he could defend the action of the debtor unless the debt

of the debtor due against him be factually non-existent. If the

creditor transfers to a third person his right against the purchaser

for a sum of one thousand dirham and thereafter the purchaser

exercises his option for defect and cancels the sale, the transfer is

not terminated, because it now involves the right and interest of

persons who were not party to contract.

The general rule is that contracts without consideration and

those that are fictitious or forged are void. The following sections

form an exception to the rule on account of the provision of

negotiability, which may involve the interest of a number of third

parties who in their turn may have paid consideration for it under a

bonafide belief about the document being genuine and legal. The

Act protects the interest of such holders in due course of the

negotiable instruments. The presumption of the Law is that an

innocent party should not be made to suffer.

Section 41 provides that an acceptor of a bill of exchange already

endorsed is not relieved from liability, by reasons that such

endorsement is forged, if he knew or had reason to believe the

endorsement to be forged when he accepted the bill.19

Section 42 states that an acceptor of a bill of exchange drawn in a

fictitious name and payable to the drawer‟s order is not, by reason

18

Negotiable Instruments Act, Section 9. 19

Negotiable Instruments Act, Section 14.


317

that such name is fictitious, relieved from liability to any holder in

due course claiming under an endorsement by the same hand as

the drawer‟s signature, and purporting to be made by the drawer.20

Section 43 declares that negotiable instrument made, drawn,

accepted, endorsed or transferred without consideration or for a

consideration, which fails, creates no obligation of payment

between the parties to the transaction. But if any such party has

transferred the instrument with or without endorsement to a holder

for consideration, such holder, and every subsequent holder

deriving title from him may recover the amount due on such

instrument from the transferor for consideration or any prior party

thereto.21

awālah and the Concept of Assignment in English Law

The concept of assignment and transfer in the legal history of

Islam is as old as Islam itself. The awālah was followed not only

as a guarantee for the payment of debt to the creditor but also as a

medium of commercial transactions. awālah in its later form was

known as saftajah (bill) which is infact precursor of todays

negotiable instruments. A deep study of the subject reveals that

from the 1st or 2

nd century Hijrah it was used not only in

commercial transactions but also in transfer of money from one

place to another so as to avoid dangers of road a practice which is

also prevalent in contemporary banking system; Ibn Zubayr used

to take money from some persons in Mecca and would give them a

letter addressed to Mus„ab ibn Zubayr in Iraq, instructing him to

pay that money, to those persons in Iraq. Ibn Abbās and ahrat

„Alī were questioned about the legality of the transactions and

they found no harm in it.

The concept of assignment remained alien for centuries for

Europe. It was in early eighteen century when the concept started

creeping into its legal system. In the French Law the term "Avel"

is used for a special guarantee of indemnity on negotiable

instruments, whether used in favour of stranger or any person

20

Negotiable Instruments Act, Section 42. 21

Negotiable Instruments Act, Section 43.


318

signing it. The word "Avel" is not therefore used in the sense of

awālah, rather the term kafālah is nearer to it. Whatever be the

sense of "Avel", there is no doubt that the concept traveled to

Europe from Islamic fiqh.

As regard the assignment or transfer of the contractual rights

and liability, the basic presumption of the law was that, all such

rights being personal to the parties concerned, cannot be

transferred to a third person who is not party to the contract, as

such act might encourage multiplying litigation or maintenance of

the suit. But with the passage of time the growing needs compelled

the jurists to accept some modification in the harsh rule. The first

thing which was subjected to such modification, was the question

of the assignment of debt from here the area of assignability was

widened to cover the other rights and liabilities.

Conclusion

◘ awālah means shifting or assignment of debt from the

liability of original debtor to the liability of another person.

◘ After the transfer of debt, the original debtor is discharged

from his liability.

◘ In absolute awālah, the transferee after making payment to

the creditor can claim its reimbursement from the debtor. In

restricted awālah the right of debtor to property with the

transferee, ceases.

◘ The absolute awālah is terminated when the transferee dies

poor and insolvent.

◘ Restricted awālah is terminated when the property of transfer

in the hand of transferee is taken by the one who is entitled to

it, or when it was a trust in his hand and was destroyed

without any fault or negligence on his part.

◘ awālah resembles negotiable Instruments in that its purpose

is to guarantee the payment of debt to the creditor. An


319

instrument is also negotiated for the purpose of guaranteeing

or securing the payment of loan due on a bill of exchange.

Chapter-20

Contract of Rahn (pledge)

Definition

1. According to the Majallah rahn is the security that can be

lawfully employed for satisfaction of a claim in respect of a

debt.1

2. According to Lane "Rahn means to pledge or lodge a real or

corporeal property of material value in accordance with the

law, as security for a debt or pecuniary obligation".2

Legitimacy

The legitimacy of rahn is established by a number of texts from

the Qur‟ān and the Sunnah. Some of such texts are as follows:

Qur‟ān

"If you are on journey and cannot find a person to write (your

debt), then pledge in hand (shall suffice)".3

It is to be mentioned here that it is not necessary that a pledge

may be held on security only on a journey. The fact is that pledge

has been mentioned in the context of journey because such

situation generally arises when a person is on journey. In such

state it is likely that he may not find a scribe to write down the

debt. The jurists are unanimous on the point that the principle

regarding loan against security as laid down in the verse will also

apply when the parties, even though at home, agree to lend and

1 Majallah, Art. 701.

2 E.W. Lane, Arabic English Lexicon, letter, S.V. “R”.

3 Qur‟ān 2: 282.


322

borrow money against security. This will also apply to cases

where the lender does not trust borrower.

Sunnah

1. arat Qatādah narrated that Anas (r.a.t.a.) went to the

Prophet (s.a.w.s.) with barley bread with some dissolved fat

on it and he (the Prophet s.a.w.s.) had mortgaged his armour

to a Jew in Madinah and took from him barley for his

family‟.4

2. arat „Āishah narrated that the Prophet (s.a.w.s.) bought

some foodstuff on credit from a Jew for a limited period and

mortgaged him armour for it.5

Legal status of the pledged property

According to the viewpoint of the majority of Muslim jurists the

pledged property assumes the status of trust in the hands of

pledgee.. Thus, if it is destroyed or lost without negligence fault or

wrongful action on his part he will not be held liable. He will

remain entitled to his debt due on the pledger. The anafī jurists

hold the view that the pledgee after taking the possession of the

property becomes responsible in case of its being destroyed in his

hands. The responsibility of the pledgee extends to the amount of

the debt owing to the pledgee. Thus, if a pledged property

equivalent to the amount of debt is destroyed in the pledgee‟s

hand, his claim is rendered void and he is deemed to have obtained

a complete payment. If, on the contrary the value of the pledge

exceeds the amount of the debt, the excess is in that case

considered as a trust for which the pledgee will not be held

responsible in case of its destruction. But if the value be less than

the debt, the pledgee forfeits that part of his debt and the pledger

will pay the remaining to the pledgee. 6

In opposition to the above-mentioned opinion, the Shāfi„ī

jurists maintain that the pledge is a trust in the hands of the

pledgee. Thus, if it is destroyed in his possession, still he does not

4 Bukhārī, aih, vol. 3, p.54.

5 Ibid.

6 Kāsānī, Badā‟i„ al-anā‟i„, vol. 6, p.163.


323

forfeit his due because it is recorded in the tradition that no pledge

shall be distrained for debt and the pledger shall be liable for all

risks.7

Conditions of pledged property

(i) It should be a thing having some monetary worth and legal

value.

(ii) It should be a thing in which transactions are permissible in

the Sharī„ah. Thus, it should not be prohibited by Islamic

Law such as pork and wine.

(iii) It should be existent at the time of contract. Thus to pledge

fruits on trees when their quality is yet to be established is not

valid, because the object of pledge in this case is non-

existent.

(iv) It should be deliverable. Thus, to pledge a stray animal is

invalid, because its possession cannot be given to the pledgee.

(v) It should be precisely determined with regard to its essence,

quantity and value. An indefinite part of any thing cannot be

the subject-matter of pledge because the pledge is taken with

a view to obtaining payment of a debt. This objective cannot

be realized if the pledge is an undefined part of property.

(vi) An article naturally conjoined cannot be pledged separately.

Thus, it is not valid to pledge fruits without trees which bear

it, crops without the land, trees without ground, because the

pledge in all these cases has connection with an article which

is still unpledged, and the possession of which cannot be

taken while the possession is a requirement of pledge.

(vii) It is not permissible to pledge the usufruct of a thing; such as

to allow the creditor to stay in the house of debtor for some

specified period in consideration of debt, these usufructs

cannot be delivered at the time of the contract. Their

continuation and permanence cannot be ensured from the

time of the contract till the time of repayment of debt.

7 Shirbīnī, Mughnī al-Mutāj, vol.2, p.137.


324

viii) It should be handed over to the pledgee. In other words

physical possession of the property should be given to the

pledgee.

ix) It should be of sufficient value to cover the amount of debt.

Conditions of claim or debt for which pledge is given

◘ It should be an established and enforceable debt. Thus a

pledge may be given for loan, price in credit sale, commodity

of Salam, claim after usurpation, damages in the torts against

property, amount of dower, blood money and all the other

binding and irrevocable claims.

◘ Pledge is not permitted for the things for which, there is no

liability of compensation such as deposits, commodate loans,

capital of muārabah and mushārakah partnerships, leased

property in the hands of lessee .

◘ It is not permissible to give pledge for an amount, which the

pledger will borrow, from the pledgee.

◘ It is not permissible to give pledge for a claim or debt, which

is not recognized in the Sharī„ah. Thus, it is not permissible

to give pledge for the remuneration of a dancer or singer,

because hiring a woman to dance or sing is an invalid and

impermissible act, hence pledge for an obligation arising

from an invalid act is also invalid.

◘ The claim or debt should be known and defined. Thus, it is

not permissible to give something as security for one of the

two loans without specifying one of them.

Maintenance of pledged property

The Muslim Jurists are unanimous on the point that the

maintenance of pledge property is primarily the responsibility of

the owner, i.e., pledger in this case. He will incur the cost of

maintenance because the Holy Prophet (s.a.w.s.) has said: "To the

pledger returns its profit, and he is held responsible for its loss".8

8 an„ānī ,Subul al-Salām, vol.3, p.52.


325

The anafī jurists, however, divide the expenses incurred on

maintenance of pledge into two categories;

(i) Expenses required for its subsistence, improvement, and

continuation of existence; and

(ii) Expenses incurred on its conservation and safekeeping.

In the opinion of anafī jurists the expenses of first category

will be borne by the pledger. As such he is responsible for feeding

the animal, the wages to be paid to the shepherd, expenses of the

watering of the garden, its weeding, grafting and the cleaning of

the water channels because these expenses relate to the

improvement and continuation of the existence of the property.

The expenses of the second category are to be borne by the

pledgee. Thus, the rent of the house wherein the pledge is kept as

well as the wages of the keeper will be payable by the pledgee.

However, if the pledge be a living animal and require a keeper and

maintenance, the expenses of these will be incurred by the

pledger.9

The other Jurists do no accept this division. In their opinion all the

expenses will be borne by the pledger.10

Benefiting From Pledged Property

A. By Pledger:

The majority of Muslim jurists is of the view that pledger cannot

benefit from the pledged property. The anafī jurists allow the

benefiting from pledged property with the permission of pledgee.

Mālikī jurists regard such benefiting invalid even with the

permission f pledgee. In their opinion such permission amounts to

termination of Contract.11

The Shāfi‟ī Jurists permit all kinds of

benefits provided its does not cause devaluation of property.12

9 Kāsānī , Badā‟i„ al-anā‟i„, vol. 6, p.151.

10 Bahutī, Kashshāf al-Qanā„ vol.3, p. 326, Ibn Qudāmā, al-Mughnī,

vol.4, p.392. 11

Kāsānī, Badā‟i„ al-anā‟i„, vol. 6, p.146. 12

Shirbīnī, al-Mughnī al-Mutāj, vol.2, p.131.


326

B. By Pledgee:

According to majority view the pledgee cannot use the pledge.

The permission given by adīth to milk or ride the animal will be

availed only in a situation where the pledger, the owner of animal

refuses to bear the expenses of its feeding. anbalī Jurists allowed

the benefiting from pledged property if it is animal. They allow the

pledgee to ride it or milk it in consideration for fodder given to it.

They support their view point by a adīth that, "the pledged

animal can be used for riding as long as it is fed and the milk of a

milch animal can be drunk according to what one spends on it.

The one who rides the animal or drinks milk should provide

expenditures".13

The contract of rahn is basically meant for the security of

debt, and not for investment and profitable use. Any profitable use

of pledged property is regarded usury in Islamic Law, because of

the adīth that "any loan which brings some benefit (for creditor)

is a kind of ribā".14

Thus, if he earns any profit out of it, he is

bound to return it to its owner. Mawlānā Mawdūdī in this

connection writes;

If the pledge is productive, the creditor should keep a regular

account of the produce and deduct it from the debt; otherwise

any profit drawn from the pledged property would be interest.

The only object in view of holding a pledge is the security of

the repayment of the debt and it does not entitle the creditor in

any way to make profit out of it. For instance, if a creditor

lives in the houses which he holds as pledge for his debt or if

he lets it to someone else, he is in fact guilty of taking interest,

if he does not credit the rent of the house to the debtor, for

there is no difference between taking direct interest on a debt

or earning money from it or making use for the property

delivered as a pledge.15

13

Ibn Qudāmā, al-Mughnī, vol.4, p.190. 14

an„ānī, Subul al-Salām, vol.3, p.53. 15

Abul A„lā Mawdūdī, Tafhīm al-Qur‟ān, Lahore: Maktabā Ta„mīr

Insāniyyat, 1983, vol.1, note # 331.


327

C. Benefit From Pedged Property Under Bay‘ al-Wafā’

Bay„ al-wafā‟ is a transaction in which a person in need of money

of sells a commodity to the lender on the condition that when he

wishes the lender would return it to him upon the return of price.

According to Sir „Abd al-Raīm this contract partakes of the

attributes of a valid sale in as much as the buyer is entitled to the

income of the property and of a vitiated sale as both the parties are

entitled to annul it and of a pledge in as much as the buyer cannot

sell or otherwise dispose of the property.16

But the fact is that it has the effect of pledge because the

seller aims to raise commercial loan through this contract. He

delivers commodities as pledge to the purchaser. He allows him to

benefit from it during the period of indebtedness. In Islamic Law

the basis to be considered in contract is the meaning and spirit, not

the name and form. Bay„ al wafā‟ is not a real sale, instead it is a

contract of pledge whereby the buyer (creditor) utilizes the

commodity for the period during which it stays in his possession.

The Muslim Jurists disapprove this transaction because it is a legal

fiction for charging interest.

Legal consequences of pledge

Some of the legal consequences of pledge are as follows:

1. The pledge has a right to keep possession until redemption of

the pledge, and if the pledger has died, he has better right

than the other creditors and can make full payment of the debt

from the pledge.

2. The pledgee can sell the pledged property with the

permission of pledger, when the debt becomes due in order to

satisfy it out of the proceeds. He can also ask the court to

have the pledge sold.

3. The pledger cannot sell pledge without consent of pledgee.

But if he sells the pledged property without seeking his

permission the sale will remain suspended and will come into

force only after the debt is paid to the pledgee. Likewise if the

16„Abd al-Raīm, Mohammadan Jurisprudence, p.233.


328

pledgee consents to the sale, it will become effective and debt

will remain due to the pledger.

4. It is permissible for the pledger to appoint the pledgee his

attorney to sell the property when the time of payment

approaches. In such case the pledger cannot dismiss him from

attornyship nor will he be dismissed by the death of either the

pledger or pledgee.

5. The pledgee is not allowed to let out or give the pledge in

loan because he is himself prohibited benefiting from it and

consequently not authorized to confer the power of

enjoyment upon others.

6. If after the discharge of the debt the pledge perishes in the

hands of pledgee, he will be liable to return the money, he has

received to the pledger, and the contract of mortgage is not

dissolved until the property is restored to the pledger.

7. On the death of the pledger, his heirs of age will stand in his

place and it will be their responsibility to free the thing

pledged by paying the debt from the property of deceased

person.

Conclusion

◘ Rahn (pledge) is to make a property security in respect of a

right or claim.

◘ According to majority's standpoint the pledged property

assumes the status of trust in the hands of the pledgee.

◘ Maintenance of pledged property is primarily the

responsibility of pledger.

◘ The pledgee is not allowed to benefit from pledged property.

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Chapter 1 - vulms.vu.edu.pk Law of... · General Principles of Contracts in the Qur‟ n and the Sunnah 8 arrows were then drawn from a bag. Those who drew blank arrows got nothing